2. What kind of a bank is RBI?
• Commercial Bank
• Development Bank
• Govt. Bank
• Bankers’ Bank
• ??
• …………
3. Reserve Bank of India
• Reserve Bank of India (RBI) is the Central
Bank of the country.
• Central Banks are responsible to manage
the monetary policy of the country.
• Central banks, typically, are independent of
the government, all over the globe.
4. Leading Central Banks
• Federal Reserve
• European Central Bank (ECB)
• Reserve Bank of England
• Deutsche Bundesbank
• Reserve Bank of Australia
• Bank of Canada
• Monetary Authority Singapore
• BIS
5. Monetary Policy
• Monetary policy is the demand side of economic
policy and aims at achieving the macro-economic
objectives such as controlling the money supply
(and thereby inflation, consumption, growth,
and employment etc).
• Monetary policy thus, consists of management of
money supply and economic stability.
• Monetary policy can be broadly classified as
either expansionary or contractionary.
6. Monetary vs Fiscal Policy
• Fiscal policy is those policies by which a
government manages its income and spending
levels and tax rates to monitor and influence a
nation's economy.
• Also called Budgetary policy, it is the sister
strategy to monetary policy through which a
central bank influences a nation's money supply.
• Using a mix of monetary and fiscal policies,
government and central bank can control the
economic activities in a country.
7. Central Bank – How is it different from
a commercial bank?
• A central bank is different from a commercial
bank. It’s primary function is to control the
money supply in the country.
• It has a monopoly on creating the currency
which the government uses as legal tender.
• It is a bank that lends money to other banks
and acts as a lender of last resort to
banks, during times of financial crisis.
• It may also have supervisory powers over
other banks, to ensure that banks and other
financial institutions do not behave recklessly
or fraudulently.
8. Central Banks - Structure
• Most developed countries have an
"independent" central bank, that is, one which
operates under specific rules designed to
prevent any kind of executive or political
interference.
• Some of the truely independent central banks
are European Central Bank (ECB) and the
Federal Reserve in the United States.
• Some of the central banks are publicly owned,
while others are privately owned.
• United States Federal Reserve is a quasi-
public corporation.
9. Functions of a Central Bank
• Implementing monetary policy
• Controlling the nation's entire money supply
• Setting the official Interest rates
• Managing inflation and currency exchange rate
• Banker to the Government and the bankers' bank
("lender of last resort")
• Managing country's foreign exchange reserves
including gold reserve
• Regulating and supervising the banking industry
• Not all these functions are carried out by all banks
10. Policy instruments
• Interest Rate Policy
• Open Market operations
• Reserve requirements for banks
• Capital Adequacy Norms
• Exchange Rate policy
- Full convertibility
- Revenue account convertibility
- Capital account convertibility
11. Reserve Bank of India
• Reserve Bank of India is the central bank in
India. Established in 1935 with a share capital
of Rs. 5 Crores on recommendations of the
Hilton Young Commission.
• The Central Office of the Reserve Bank was
initially in Calcutta but was permanently
moved to Mumbai in 1937.
• Though originally privately owned, since
nationalisation in 1949, the Reserve Bank is
fully owned by the Government of India.
12. RBI - Organizational Structure
• The general superintendence and direction of
the Bank is entrusted to a Central Board of
Directors of 20 members, the Governor and
four Deputy Governors.
• Current Governor : Shaktikanta Das
• Last few Governors:
• Urjit Patel
• Raghu Ram Rajan
• D. Subba Rao
13. Role of RBI as per preamble of
RBI Act 1935
• To maintain the monetary stability in the
country. To achieve this, RBI formulates
monetary policies independently.
• To operate the credit and currency
system of the country.
• To regulate the issue of banknotes.
14. RBI Role
• Monetary Authority.
• To regulate the issue of banknotes.
• To maintain reserves with a view to
securing monetary stability and
• To operate the credit and currency system
of the country.
15. Goals of Monetary Authority
• Price Stability (Inflation)
• Interest Rate Stability
• Financial Market Stability
• Foreign Exchange Market Stability
• High Employment
• Economic Growth
– Volatile interest and exchange rates generate costs to
lenders and borrowers. Unexpected changes that
cause damage, making policy formulation difficult.
16. Monetary Policy Committee
• The Monetary Policy Committee (MPC) was created
in 2016 to bring transparency and accountability in
deciding on India's Monetary Policy, including fixing
the benchmark interest rate.
• MPC comprises of six members - three officials of the
Reserve Bank of India and three external members
nominated by the Government of India. The
Governor of Reserve Bank of India is the ex officio
chairperson of the committee.
• MPC decisions are taken by majority with Governor
RBI having the casting vote in case of a tie.
17. MPC Current Members
• Governor of the Reserve Bank of India – Shantikanta
Das, Chairperson, ex officio.
• Deputy Governor RBI in charge of monetary policy —
Michael Debrata Patra
• Executive director RBI in charge of monetary policy
— Janak Raj
• Prof. Ashima Goyal, Indira Gandhi Institute of
Development Research, Mumbai
• Prof. Jayanth R Varma, IIM, Ahemdabad
• Dr. Shashanka Bhide, Senior Advisor, National
Council of Applied Economic Research, New Delhi
18. MPC Meetings & deliberations
• The meetings of the Committee are held 6 times
in a year, February, April, June, August, October
and December.
• The committee members need to observe a
"silent period" of seven days before and after the
rate decision for "utmost confidentiality".
• The monetary policy is published after every
meeting, with each member explaining his
opinions.
19. Inflation Targeting
• Inflation targeting is a tool of the monetary
policy where the Central Bank sets a
specific inflation rate as its goal.
• The central bank does this to make the public
aware that prices will continue rising.
• It spurs the economy by making you buy
things now before they cost more.
• Most central banks use an inflation target of
2%.
20. Inflation Targeting in India
• In India, the current mandate of the Monetary
Policy Committee is to maintain 4% annual
inflation until March 31, 2021 as it’s target,
with an upper tolerance of 6% and a lower
tolerance of 2%.
• MPC is answerable to the Government of
India if the inflation exceeds the range
prescribed for three consecutive months.
21. RBI functions
• Bank of Issue - sole right to issue bank notes
of all denominations
• Banker to government
• Banker to banks -Lender of last resort
• Controller of credit
• Custodian of foreign exchange
• Supervisory function over banking system
• Developmental/ Promotional function
22. Issuer of currency
• RBI is the sole authority to issue bank
notes in the country.
• RBI responsible to ensure that there is
adequate supply of notes and coins at
all times. It also destroys the coins/
notes not fit for circulation.
• RBI also responsible to ensure that
public faith in paper currency is not lost.
23. Banker & Debt Manager to GOI
• It keeps banking accounts of the Central
and State Governments.
• It receives and pays on behalf of the
government.
• It manages public debt program of the govt,
including T Bills and bonds etc.
• It advises GOI on matters like deficit
financing, management of public debts etc.
24. Banker to Banks
• All banks are required to have
accounts with RBI.
• Clearing and Settlement of interbank
obligations.
• CRR and SLR
• Lender of last resort
25. Management of Foreign
Exchange
• RBI regulates all transactions relating
to the external sector of the economy.
FEMA 2000.
• RBI is the custodian of forex reserves
of the country.
• RBI responsible to manage the
external value of INR at the most
optimum level.
26. Regulation of banking system
• As a regulator, RBI protects the interest
of depositors and ensures orderly
development and conduct of banking
operations.
• Grants licenses to banks, opening new
banks / branches.
• Level playing field to ALL players.
• Inspection
27. Controller of Credit
• Credit control is one of the most important
functions of RBI
• RBI controls both the volume and direction
of credit in the country.
• Quantitative CC measures include bank
rate policy, open market operations and
variable reserve ratio etc.
• Qualitative or selective CC measures are
margin requirements, rationing credit,
direct action or moral suasion etc
