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Banking History• In the first half of the nineteenth century, threePresidency Banks were started in Madras,Bombay and Bengal with the financialparticipation of the government for conductingbanking business and issue currency notes.• Towards the end of the 19th Century the cashbalances of the government were kept in thegovernment treasuries and the government shedits connections with the Presidency Banks.Contd …
• The Imperial Bank came into existence on the 27thJanuary, 1921 by the Imperial Bank of India Act of1920.• It was established by the amalgamation of the threePresidency Banks.• The Imperial Bank was the biggest bank until 1935.• Until the establishment of the Reserve Bank of India in1935, the Imperial Bank performed certain centralbanking functions, although it was purely a commercialbank.• It acted as the sole-banker to the Government.Banking History
Introduction• It is the Central Bank of India Established in1934 under the RESERVE BANK OF INDIA ACT1934.• Its head quarters is in Mumbai (Maharashtra).Its present governor is Duvvuri Subbarao.• It has 26 offices in which four are regionaloffices located in metropolitan cities.
Brief History of RBI• It was set up on the recommendations of theHilton Young Commission.• It was started as share-holders bank with a paidup capital of INR 5 crore.• Initially it was located in Kolkata. It moved toMumbai in 1937.• Initially it was privately owned. The govt. had anominal value of shares of INR 2,20,000. Later onin 1949, the bank was nationalised and is fullyowned by the Govt. of India.
Preamble• The Preamble of the Reserve Bank of Indiadescribes the basic objectives of the ReserveBank as"...to regulate the issue of Bank Notes andkeeping of reserves with a view to securingmonetary stability in India and generally tooperate the currency and credit system of thecountry to its advantage."
SubsidiariesThe Reserve Bank of India has fully-owned four subsidiarieswhich include National Housing Bank(NHB). Deposit Insurance and Credit Guarantee Corporation ofIndia(DICGC). Bharatiya Reserve Bank Note Mudran PrivateLimited(BRBNMPL). National Bank for Agriculture and Rural Development(NABARD, 12 July, 1982). The Reserve Bank of India has recently divested its stake inState Bank of India to the Government of India. RBI has also set up some trainning institutions.
Functions of RBI Monetary functions Note issue (except one rupee note all other notes are issued) Banker to the government Banker’s bank Custodian of foreign reserves Controller of credit Bank Rate Open market operations Variable reserve requirements (Cash Reserve Requirement &Statutory Liquidity Requirements) Non-Monetary FunctionsSupervisory functionsPromotional functions
Banker to the Government Keeping the cash balances of the Government as deposits free ofinterest. Receiving and making payments on behalf of the Govt. Carrying out the Govts’ exchange remittances and other bankingoperations. Helping both Central and State Govts float new loans and mangepublic debt. Making ways and means advances to the state and local authorities. Acting as advisor to the Govt. on all monetary and banking matters.
Banker’s Bank• Apex banking institution• Controls the banking activities and creditsystem in India• It provides financial assistance to scheduledbanks by rediscounting eligible securities
Custodian of Foreign Reserves• Most of the countries, central bank is with thetask of managing their foreign reserves.• In India, RBI has maintain the rate ofexchange.• According to RBI Act, 1934 the bank wasrequired to buy and sell at fixed rates.• The bank has licensed several banks asauthorized dealers in foreign exchange.
Controller of Credit• Bank Rate– Sec.49 of RBI Act, empowers the Reserve Bank topublish the bank rate from time to time.– Standard rate which is prepared to buy or rediscountbills of exchange or other commercial papers eligiblefor purchase under this act.– RBI is able to regulate commercial bank credit and thegeneral credit situation in the country to a certainextent.– 9.00% (w.e.f. close of business of 17/04/2012)– Decreased from 9.50% to 9.00% which was continuingsince 13/02/2012Contd …
Controller of Credit• Open market operations– The purchase and sale of Govt. securities by theRBI from/to the public and bank on its ownaccount.– Section 17(8) provides this right to RBI.– To provide seasonal finance to commercial banksby purchase of securities from them.
Variable Reserve Requirements• Sec 42 of RBI Act, every bank included in thesecond schedule shall maintain with the bank anaverage daily balance, the amount of which shallnot be less than 3% of the total demand and timeliabilities in India of such bank.• The reserve maintained is called Cash ReserveRequirement/Ratio (CRR).• According to Sec 24 of Banking Regulation Act,every banking company shall maintain Cash, Goldand Approved securities which shall be less than25% of business on any day.
Cash Reserve Requirement (CRR)• Every scheduled bank should maintain a minimum balancewith RBI.• It was 5% on demand deposits and 2% on time deposits.• The reserve between 5 and 20% in respect of demandliabilities and 2 and 8% in respect of time liabilities.• RBI (amendment) Act 1962 removed the distinctionbetween time and demand liabilities.• Then the ratio changed to 3 and 15% for time and demandliabilities.• 4.75% (w.e.f. 10/03/2012) -announced on 24/01/2012• Decreased from 5.50% which was continuing since24/01/2012
Statutory Liquidity Requirement (SLR)• It is another method of influencing thelending policies of commercial banks.• RBI is given the power to change theminimum liquidity ratio.• Narasimham Committee recommended itwas from 25 to 38%.• RBI gradually reduced the SLR.• 23%(w.e.f. 11/08/2012) announced on31/07/2012
Non-Monetary Functions• Supervisory Function– RBI Act 1934 & than Banking Regulations Act 1949have given wide range of powers to RBI to controlover commercial banks.– The Section 22 of Banking Regulations Act 1949, everybank has to obtain a license from RBI carrying onbanking business.– Sanction of new branch or a new place of business.• Promotional Functions– It promotes banking habits– Extend banking facilities to rural and semi urban areas– Establish and promote new specialized financingagencies
Indian Organized Money Market
Introduction• It regulates and makes policy relating tomonetary management in the country.• It is an organ of the government whichparticipates in financial markets in differentways.• By issuing of currency notes which is directlyand solely under the purview of the CentralBank.
• By working as the agent and adviser of theGovernment specifically concerning to thefinancial matters, such as loans, advances,servicing of debts, etc.• By acting as bankers’ bank in the financial marketand it regulates the banking operations in thecountry.• By maintaining adequate foreign exchangereserve for meeting the requirements of foreigntrade and servicing of foreign debts.Introduction
Functions• Note issue• Government’s banker, agent and adviser• Banker’s bank and lender of last resort• Custodian of foreign balances of the country• Central clearance, settlement and transfer• Credit control