5. UP GK अक्षय सर CODE – Y699
Mechanical
Engineer -Chitkara
School Of Engg.
& tech. Punjab
Masters of
sociology- Panjab
University ,
Chandigarh
1. UPSC mains 2017
2. HCS Prelims- 2021
3. Optional – Sociology
4. Ugc net cleared
thrice for assistant
professor in
sociology
Educator of
GS economic &
sociology option -3
years
7. UP GK अक्षय सर CODE – Y699
Function of RBI
Quantitative Method
Quantitative Method 1
RBI
8. UP GK अक्षय सर CODE – Y699
Function of RBI
Bank of issue – Issue of new currency, all notes except rupee one note and all coins are issued by the RBI.
Rupee 1 note and coins are issued by the ministry of finance but circulated by RBI.
To issue money RBI has to maintain a reserve of 200 Cr (115 Cr in Gold and 85 Cr in foreign Currency )
RBI also ensure that issue of new money does not lead to inflation.
Rupee 1 note is signed by finance secretary of india & other note by RBI Governor.
2. Banker & Debt manager to the govt – RBI act as banker to both central as well as state govt.
It carries out all the banking business of the govt and keep the cash of the govt
RBI also provides credit (loan) to the govt.
The govt borrow money by selling T- Bills (Treasury bill) for short term and G- sec/ Bonds for long term.
RBI also manager the govt debt.
3. Banker’s Bank -RBI holds a part of the CRR (Cash reserve ratio) of the bank to manage inflation
RBI also provide loan to the bank when there is temporarily need of fund. Thus acting as a (lender of last resort)
the banks in temporarily need of fund are supposed to approach other sources like call money market (1 day) & notice Money (1-14 days) , Inter bank transaction and then only approach the
RBI.
The RBI supervision, regulate & advices the banks
9. UP GK अक्षय सर CODE – Y699
4. Custodian of foreign Reserve-It includes management of FEMA act 1999 (Foreign exchange Management Act.)
Keeping the forex reserve (foreign exchange) of the country.
Stabilizing the exchange rate of rupee.
d. Representing the govt of india in the international monetary fund and world Bank.
4. Monetary authority – It includes formulation, implementation and monitoring of the monetary policy.
RBI stabilizes the WPI index & CPI index.
5.Regulator and Supervisor of payment & settlement system
Bank –Banking Regulation act 1949, payment system act 2007.
6. Development function - It did set up developmental banks such as IDBI, SIDBI, NABARD, EXIM bank & NHB.
7. International Cooperation – Eg. BASEL, IMF, G20, financial stability Boar
8. Controller of Credit – RBI act as a (COC) which means control of lending and deposit capacity of the bank.
The control of money supply which is essential to control inflation and to promote economic growth .
RBI can ask any particular bank on whole banking system to not to lend to particular group or person.
10. UP GK अक्षय सर CODE – Y699
Quantitative Method – It aims at controlling the cost and quantity of credit.
Bank Rate - It is the interest rate which Rbi charges on long term lending.
The Client who can borrow through this route are central govt, state govt, financial Institution, co- operative bonds, NBFC.
A rise in bank rate causes the commercial bank to increase the rate at which they lend. Thus discourages the public from taking loan.
6.50 = Dec 2022
When unemployment rate goes up the central bank reduces bank rate so that cheap funds are available to banks & so youth gets loan at lower rate to start business.
Bill of exchange – It is a written document that assures payment of money by purchaser to the seller for goods purchase at a future date.
Discounting – Means the process of converting the bill of exchange into money at an earlier rate that is mentioned in the bill of exchange.
If receiver needs money urgently, he can approach a bank for money & bank accepts the (BOE) and makes payment after deducting a certain % as interest.
Further the bank can convert this money into a lesser discount rate from the RBI. This is called as rediscounting.
Open Market Operations-It can be described as the purchase and sale of govt securities in the open market by the RBI in order to influence the vol of money in the
economy.
Purchase of govt securities inject the money into the market and thus expands credit.
Sale of securities have the opposite effect that is absorbing excess liquidity from the market and shrinking of the credit thus helps in managing inflation.
11. UP GK अक्षय सर CODE – Y699
CRR – Cash Reserve Ratio
It is a monetary tool to regulate supply of money, banks are required to keep a certain (%) of their net demand & time liabilities with the RBI in cash form.
CRR deposit earns no interest (expect demonetization RBI gave interest on CRR deposit)
CRR is adjusted to manage liquidity and inflation.
The more the CRR the less money available for the lending by the bank.
Thus RBI uses CRR either to drain excess liquidity or to release funds needed for growth.
Can not be in the form of gold or form $ by they are volatile.
Mandated under RBI act 1934.
Dec 2022 – 4.5%.
SLR – Statutory liquidity Ratio
It is a portion of NDTL of Bank that they should keep with themselves in the form of gold, cash govt securities approved by RBI, state development loans.
By changing the level of (SLR), the RBI can increase or decrease the bank credit expansion.
This reserve is a precautionary measure as it prevents the bank from landing all its deposit.
To make commercial bank to invest in govt security so that govt has adequate financial sources.
Mandated under Banking regulation Act 1949.
Dec 2022 – 18%
CRR & SLR are counted on fortnightly basis. If not maintained bank will have to pay penalty interest rate to RBI which is linked with Bank Rate
12. UP GK अक्षय सर CODE – Y699
Bank Run- It is the situation when everybody wants to take money out of one’s bank account before the bank run’s out of the reserve as more & more people withdraw their fund. The probability of bank to default payment
increases.
Liquidity Adjustment facility – (LAF)
LAF operation help the RBI to effectively transmit interest rate signal to the market. it is a short term credit control measure to absorb the access liquidity. It has 2 instruments .
Repo Rate
Reverse Repo Rate
Repo Rate - (Repurchase Rate) – 6.25 – Jan 2023 (1-14 days)
RBI lends on a short term bases to commercial bank on the bases of security of govt bonds non SLR quote (G-sec as collaterals )
RBI charges an interest Rate on these transactions.
It is our Polity Rate to control inflation.
Bank’s can’t pledge their SLR – quota( g-sec).
2013- RBI introduced term Repo for (7/14/28) days to inject liquidity over a period that is longer than overnight
If Inflation is high – RBI repo rate high – dear money policy.
Reverse Repo Rate – 3.35 – Jan 2023
When RBI borrows from commercial bank to absorb access liquidity on the bases of securities & repurchase them after sometime.
It is the rate of interest the RBI pays to its clients who offer short – term loan to it
RBI gives its (G-sec) as a collateral to its client.
13. UP GK अक्षय सर CODE – Y699
Long term Repo Operation –The tenure of LTRO will be from 1 to 3 years loan given
Repo rate . This will increase loanable funds with bank.
SDF – Standing deposit facility -Clients can park their extra money with RBI. RBI does not give any collateral (G-sec) in return.
This has replaced reverse Repo Rate
SDF Jan 2023 – 6%
MSF ( Marginal Standing facility)-it was introduced in 2011.
Only schedule commercial banks can borrow from the RBI at a rate more than repo rate.
It is a overnight loan. If the bank do not have security over and above the (SLR) required, MSF is open to them.
They can use the securities from the SLR Quota & keep the max amount of loan to 1% of NDTL and the loan size will be minimum 1 cr & further amount are in multiple of 1 cr.
The rate of interest for MSF is (Repo rate + 0.25)
MSF Jan 2023 – 6.50
Market Stabilization scheme – Surplus liquidity of a more enduring nature arising from large capital inflow is absorbed through sale of short- dated govt securities and T- Bills.
Base Rate-It is the rate below which schedule commercial bank can not lend loan to its customer.
Base Rate Dec 2022 – 6.25%
14. UP GK अक्षय सर CODE – Y699
Qualitative method
These method control use and direction of credit. These method discriminate between sector.
Regulation of margin required
Margin is the amount that has to be contributed by the borrower. If the margin is high, loan off take will be low.
Eg. gold deposit ( min 60k gold deposit 1 Lakh loan)
Regulation of consumer credit
a. Minimum down payment
b. Period of repayment
Rationing of credit – In this method the max amount of credit that can be given to a particular sector is controlled.
Eg. Farmer, priority sector lending.
Moral Suasion – It means the method of persuasion, method of request, method of informal suggestion and advice to commercial bank about does & don’t. the banks are morally expected to
follow the RBI guidelines but it is not binding on the banks. Eg. Conference, meeting, Seminars, requesting CM or finance minister to control fiscal deficit & subsidy leakage.
15. UP GK अक्षय सर CODE – Y699
Direct Action – In this case the RBI issue certain policy decision from time to time & they are to be followed by banks. RBI
can also Punish the bank.
Publicity – It means the publication of weekly or monthly statement of assets and liability of commercial bank through
journals & website. It brings greater transparency & puts moral pressure on the banks. Eg. annual financed stability report.
Supervisory function – Supervision of banks activities.
Promotional function – a. To promote financial literacy among the people.
Customer protection through ombudsman
Financial inclusion through PSL norm.
