RBI brief

2. Banking History
• In the first half of the nineteenth century, three
Presidency Banks were started in Madras,
Bombay and Bengal with the financial
participation of the government for conducting
banking business and issue currency notes.
• Towards the end of the 19th Century the cash
balances of the government were kept in the
government treasuries and the government shed
its connections with the Presidency Banks.
Contd …

3. • The Imperial Bank came into existence on the 27th
January, 1921 by the Imperial Bank of India Act of
1920.
• It was established by the amalgamation of the three
Presidency Banks.
• The Imperial Bank was the biggest bank until 1935.
• Until the establishment of the Reserve Bank of India in
1935, the Imperial Bank performed certain central
banking functions, although it was purely a commercial
bank.
• It acted as the sole-banker to the Government.
Banking History

4. Introduction
• It is the Central Bank of India Established in
1934 under the RESERVE BANK OF INDIA ACT
1934.
• Its head quarters is in Mumbai (Maharashtra).
Its present governor is Duvvuri Subbarao.
• It has 26 offices in which four are regional
offices located in metropolitan cities.

5. Brief History of RBI
• It was set up on the recommendations of the
Hilton Young Commission.
• It was started as share-holders bank with a paid
up capital of INR 5 crore.
• Initially it was located in Kolkata. It moved to
Mumbai in 1937.
• Initially it was privately owned. The govt. had a
nominal value of shares of INR 2,20,000. Later on
in 1949, the bank was nationalised and is fully
owned by the Govt. of India.

6. Preamble
• The Preamble of the Reserve Bank of India
describes the basic objectives of the Reserve
Bank as
"...to regulate the issue of Bank Notes and
keeping of reserves with a view to securing
monetary stability in India and generally to
operate the currency and credit system of the
country to its advantage."

7. Subsidiaries
The Reserve Bank of India has fully-owned four subsidiaries
which include
 National Housing Bank(NHB).
 Deposit Insurance and Credit Guarantee Corporation of
India(DICGC).
 Bharatiya Reserve Bank Note Mudran Private
Limited(BRBNMPL).
 National Bank for Agriculture and Rural Development
(NABARD, 12 July, 1982).
 The Reserve Bank of India has recently divested its stake in
State Bank of India to the Government of India.
 RBI has also set up some trainning institutions.

8. 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 Functions
Supervisory functions
Promotional functions

9. Banker to the Government
 Keeping the cash balances of the Government as deposits free of
interest.
 Receiving and making payments on behalf of the Govt.
 Carrying out the Govts’ exchange remittances and other banking
operations.
 Helping both Central and State Govts float new loans and mange
public debt.
 Making ways and means advances to the state and local authorities.
 Acting as advisor to the Govt. on all monetary and banking matters.

10. Banker’s Bank
• Apex banking institution
• Controls the banking activities and credit
system in India
• It provides financial assistance to scheduled
banks by rediscounting eligible securities

11. Custodian of Foreign Reserves
• Most of the countries, central bank is with the
task of managing their foreign reserves.
• In India, RBI has maintain the rate of
exchange.
• According to RBI Act, 1934 the bank was
required to buy and sell at fixed rates.
• The bank has licensed several banks as
authorized dealers in foreign exchange.

12. Controller of Credit
• Bank Rate
– Sec.49 of RBI Act, empowers the Reserve Bank to
publish the bank rate from time to time.
– Standard rate which is prepared to buy or rediscount
bills of exchange or other commercial papers eligible
for purchase under this act.
– RBI is able to regulate commercial bank credit and the
general credit situation in the country to a certain
extent.
– 9.00% (w.e.f. close of business of 17/04/2012)
– Decreased from 9.50% to 9.00% which was continuing
since 13/02/2012
Contd …

13. Controller of Credit
• Open market operations
– The purchase and sale of Govt. securities by the
RBI from/to the public and bank on its own
account.
– Section 17(8) provides this right to RBI.
– To provide seasonal finance to commercial banks
by purchase of securities from them.

14. Variable Reserve Requirements
• Sec 42 of RBI Act, every bank included in the
second schedule shall maintain with the bank an
average daily balance, the amount of which shall
not be less than 3% of the total demand and time
liabilities in India of such bank.
• The reserve maintained is called Cash Reserve
Requirement/Ratio (CRR).
• According to Sec 24 of Banking Regulation Act,
every banking company shall maintain Cash, Gold
and Approved securities which shall be less than
25% of business on any day.

15. Cash Reserve Requirement (CRR)
• Every scheduled bank should maintain a minimum balance
with RBI.
• It was 5% on demand deposits and 2% on time deposits.
• The reserve between 5 and 20% in respect of demand
liabilities and 2 and 8% in respect of time liabilities.
• RBI (amendment) Act 1962 removed the distinction
between time and demand liabilities.
• Then the ratio changed to 3 and 15% for time and demand
liabilities.
• 4.75% (w.e.f. 10/03/2012) -announced on 24/01/2012
• Decreased from 5.50% which was continuing since
24/01/2012

16. Statutory Liquidity Requirement (SLR)
• It is another method of influencing the
lending policies of commercial banks.
• RBI is given the power to change the
minimum liquidity ratio.
• Narasimham Committee recommended it
was from 25 to 38%.
• RBI gradually reduced the SLR.
• 23%(w.e.f. 11/08/2012) announced on
31/07/2012

17. Non-Monetary Functions
• Supervisory Function
– RBI Act 1934 & than Banking Regulations Act 1949
have given wide range of powers to RBI to control
over commercial banks.
– The Section 22 of Banking Regulations Act 1949, every
bank has to obtain a license from RBI carrying on
banking 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 financing
agencies

18. Indian Organized Money Market

19. Central Bank

20. Introduction
• It regulates and makes policy relating to
monetary management in the country.
• It is an organ of the government which
participates in financial markets in different
ways.
• By issuing of currency notes which is directly
and solely under the purview of the Central
Bank.

21. • By working as the agent and adviser of the
Government specifically concerning to the
financial matters, such as loans, advances,
servicing of debts, etc.
• By acting as bankers’ bank in the financial market
and it regulates the banking operations in the
country.
• By maintaining adequate foreign exchange
reserve for meeting the requirements of foreign
trade and servicing of foreign debts.
Introduction

22. 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