The Reserve Bank of India was established in 1935 to regulate banking and credit in India. It was established with a share capital of 5 crores and nationalized in 1949. As India's central bank, the RBI guides and regulates the financial system, maintains monetary stability, and acts as a bank for the government and other banks. It performs key functions such as issuing currency, controlling credit and foreign exchange rates, supervising banks, and promoting rural financing to achieve its goals of maintaining monetary and financial stability.

2.  “… 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."

3.  Established onApril 1, 1935 with share capital of Five
Crores on recommendation of Hilton Young Commission
1926.
 RBI was Nationalised inYear1949.
 Central Officewas initially established in Calcutta and
moved to Mumbai in 1937

4. • It is the central bank of the country and it is the
centre of the Indian financial and monetary
system.
• As the apex institution, it has been guiding,
monitoring, regulating, controlling and
promoting the destiny of the Indian Financial
System since its inception.
• It is the oldest among the central banks in the
developing countries but it is quit young
compared with such central banks as the bank of
England, and the Federal Reserve Board of the
US.

5. • It is started functioning from April 1, 1935 on the
terms of the Reserve Bank of India Act, 1934.
• The bank is managed by a Central Board of
Directors, Four Local Boards of Directors and a
committee of the central Board of Directors.
• The functions of the Local Boards are to advise
the central Board on matters referred to them;
they are also required to perform duties as are
delegated to them.

6. • The final control of the Bank vests in the Central
Board which comprises the
• Governor
• Four Deputy Governors
• And 15 Directors nominated by Central
Government.
• The internal organizational set-up of the Bank has
been modified and expanded from time to time in
order to cope with the increasing volume and
range of the Bank’s activities.

7. •In order to perform its various functions, the
bank has been divided and sub-divided into a
large number of departments.
•A part from banking and issue departments,
there are at present 20 departments and 3
training establishments at the central office of
the bank.

8.  Head office in Mumbai.
 24 Regional offices,
most of them in
State Capital.

9. Chandigarh
New Delhi
Jaipur
Lucknow
Kanpur
Patna
Guwahati
Ahamadabad
Calcutta
Hyderabad
Banglore
Trivandrum
Chennai
Mumbai
Byculla
Bhuaneshwar
Nagpur
Mysore
Nasik
Dewas
Salboni
Noida
Mumbai
Hyderabad
Calcutta
Bhopal
Mint
Press
Issue Offices
Hyderabad
Banglore
Trivandrum
Chennai
Mysore

10. MAIN FUNCTIONS OF RBI
• To maintain monetary stability so that the
business and economic life can deliver
welfare gains of a properly functioning mixed
economy.
• To maintain stable payments system so that
financial transactions can be safely and
efficiently executed.

11. • To maintain financial stability and ensure sound
financial institutions so that monetary stability
can be safely pursued and economic units can
conduct their business with confidence.
• To promote the development of financial
infrastructure of markets and systems, and to
enable it to operate efficiently i.e., to play a
leading role in developing a sound financial
system so that it can discharge its regulatory
function efficiently.

12. • To ensure that credit allocation by the financial
system broadly reflects the national economic
priorities and societal (public) concerns.
• To regulate the overall volume of money and
credit in the economy with a view to ensure a
reasonable degree of price stability.

13. ROLES OF RBI
• Bank of Issue
• Banker of Government
• Bankers’ Bank and Lender of the Last Resort
• Controller of Credit
• Custodian of Foreign Reserves
• Supervisory Functions
• Promotional Functions

14.  1. Bank of Issue (Under Sec 22)
• The RBI has, since its inception, the sole right or
authority or monopoly of issuing currency notes other than
one rupee notes and coins of smaller denominations.
• The issue of currency notes is one of its basic functions.
•Although one rupee coins and notes, and coins of smaller
denominations are issued by the Government of India, they
are put into circulation only through the RBI.

15.  At present, the Bank issues notes in the following
denominations: Rs. 5, 10, 20, 50, 100, 500 and 2,000.
The responsibility of the banks is not only to put currency
into or withdraw it from circulation but also exchange notes
and coins of one denomination into those of other
denominations as demanded by the public.
All affairs of the Bank relating to note issue are conducted
through its Issue Department.

16. In order to discharge its currency functions, the
Bank has 15 full-fledged issue offices and two
sub-offices, and 4127 currency chests in which
the stock of new and re-issuable notes, and
rupee coins are stored.
 of these, 17 chests were with the RBI, 2877 with the
SBI and associate banks, 791 with nationalised banks,
423 with treasuries and 19 with private sector banks.

17.  2. Banker to Government
• RBI is banker, agent and advisor of Central Government
and all State Government in India.
• RBI helps the Government to float new loans and to
manage public debt.
• RBI makes loans and advances to the States and local
authorities.

18.  The banks receives government deposits free of
interest, and it is not entitled to any remuneration for the
conduct of the ordinary banking business of the
Government.
The deficit or surplus in the Central Government
account with the RBI is managed by the creation and
cancellation of treasury bills (known as ad-hoc treasury
bills)

19.  Ways and Means Advances: As a banker to
the government, the Bank can make “ways and means
advances” (i.e., temporary advances made in order to
bridge the temporary gap between receipts and
payments) to both central and state governments.
The Maximum maturity period of these advances is
three months.

20.  Overdrafts: apart from the ways and means
advances, the state governments have made heavy use
of overdrafts from the RBI. An overdraft refers to drawals
of credit by the State Governments from the RBI in
excess of the Credit (ways and means advances) limits
granted by the RBI.
At present, ODs up to and inclusive of the seventh day
are charged at the Bank rate and from the eighth day
onwards at 3% above the bank rate.

21.  The issue, management and administration of
the public (Central and State Governments) debt
are among the major functions of the RBI as the
banker to the government. The Bank charges a
commission from the governments for rendering
this service.

22.  3. Banker’s Bank & Lender of Last Resort
• RBI maintains banking accounts of all schedule
banks.
•The bank controls the volume of reserves of commercial
banks and there by determines the deposits/credit
creating ability of the banks.
•The banks hold a part or all of their reserves with the RBI.
•Similarly, in times of need, the banks borrow funds from
the RBI. It is therefore, called the bank of last resort or the
lender of last resort..

23. The RBI is the ultimate
source of money and
credit in India

24. In keeping with the recommendations of Narasihmam
Committee (1991) , the RBI function of bank supervision
was separated from its traditional central banking function
by the creation of a separate Department of Supervision
(DOS) from 22 November, 1993.
Due to securities scams the Board of Financial Supervision
(BFS) was set up on 16th November, 1994.

25.  The BFS has a full-time vice-chairman and six
other members, the RBI Governor is its chairman.
It has power to supervise and inspect banks,
financial institutions, and NBFCs.
 There are a 5 member Advisory Council to render
advice to it. The Dept. of Supervision (DOS)
assists the BFS.

26. 4 Controller of Credit :-
• RBI holds the cash reserves of all schedulebanks.
• It holds credit operations of banks throughquantities
• RBI has power to ask bank or whole banking system
not to lend particular group or person.
• Every bank have to get license from RBI for banking
operation.RBI can also cancel this license.
• Every bank gives weekly returnshowing assets and
liabilities in details .

27.  5. Custodian of Foreign Reserves :-
• RBI responsible to maintain official rate of exchange
as according terms of I.M.F.
• RBI reserves the international currency.
• RBI observes relationship of Indian Currency with
other International currency.

28.  6. Supervising Authority:
• The RBI has vast power to supervise and control commercial and
co-operative banks with a view to developing an adequate and
sound banking system in the country. It has , in this filed, the
following Powers:
•To issue licenses for the establishment of new banks
•To issue licenses for the setting up of bank branches.
•To prescribe minimum requirements regarding paid-up capital and
reserves, transfer to reserve fund, and maintenance of cash reserves
and other liquid assets.

29. Powers:
To control appoint, re-appointment, termination of
appointment of the Chairman and Chief Executive
officers of Private Sector Banks and
To approve or force amalgamations.

30. Powers:
To inspect the working of banks in India as well as abroad in
respect of their organizational set-up, branch expansion.
Mobilization of deposits, investments and credit portfolio
management, credit appraisal, region-wise performance, profit
planning, manpower planning and training .
To conduct ad hoc investigations, from time to time, into
complaints, irregularities, and frauds in improper investments and
injudicious (careless) advances.

31.  7. Promotional Functions
• RBI ask banks and financing agencies to promote rural
and semi-urban areas by financing (funding ).
• RBI setup directly or indirectly some institutions like :
• Deposit Insurance Corporation ( 1962 )
• Industrial Development Bank ( 1964 )
• Unit Trust of India ( 1964 )
• Industrial Reconstruction Corp. of India ( 1972 )
• Agricultural Refinance Corporation ( 1963 )
• RBI promotes villagers for saving and route this money
as short term credit to agriculture.

32. MONETARY POLICY
• Monetary policy is that part of economic
policy in which central bank controls the cost
and supply of money and credit by applying
different techniques. It is also main function of
central bank.

33.  Many Techniques of Monetary
Control – some old and well
known, others specially devised
and adapted have been used in
India. Among these are:

34.  Open Market Operations (OMO)
Bank Rate
Discretionary control of refinance and
rediscounting
Direct Regulation of Interest Rates on
Commercial Banks’ Deposits and Loans
Cash Reserve Ratio (CRR)
Statutory Liquidity Ratio (SLR)

35.  Direct Credit Allocation and Credit Rationing
Selective Credit Controls (SCC)
Credit Authorisation Scheme (CAS)
Fixation of Inventory and Credit Norms
Credit Planning
Liquidity Adjustment Facility (LAF)

36.  This Technique is used an actively in the US, UK
and many other countries also. Through the Open
Market Sales and Purchases of Government
Securities, the RBI can affect the reserves position
of banks, yields on government securities and
volume and cost of bank credit. However, it is the
technique least used by the Bank, though it has
wide powers to use it.
Open Market Operations (OMO)

37. There is no restriction on the quantity of maturity
of government securities which it can buy or sell or
hold.
Technically, the Bank can conduct OMOs in
treasury bills, State Government Securities, and
Central Government Securities, but in practice,
they are conducted only in Central Government
securities of all maturities.
Open Market Operations (OMO)

38. It purchases and sells government securities from
time to time out of the surplus funds of the IDBI,
EXIM bank and NABARD.
Open Market Operations (OMO)

39. GOALS AND OBJECTIVES: the multiple objectives
include:
To make Bank rate policy more effective
To maintain stability in government securities
market
To support government borrowing programe
To smoothen the seasonal flow of funds in the
bank credit market.
Open Market Operations (OMO)

40. Bank Rate:
 It is the basic cost of refinance and
rediscounting facilities. The RBI provides
financial accommodation in the form of
rediscounting of bills of exchange and
promissory notes, loans and advances to
scheduled commercial and co-operative banks,
SFCs, IDBI, IFC, EXIM Bank and other
approved financial institutions for financing
bonafide internal and external commercial,
trade and production transactions.

41. Cash Reserve Ratio:
 Which refers to the Cash which banks have to
maintain with the RBI as a certain % of their demand
and time liabilities.
 Till 1962, a separate CRR was fixed in respect of
Demand Liabilities (5%) and Time Liabilities (2%).


42. • The Bank had powers to vary these ratios
up to a maximum of 20% and 8%
respectively. Subject to these ceilings, the
RBI could ask banks to maintain with itself
additional reserves as a specified % of
additional demand and time liabilities after
a certain specified date.

43. Cash Reserve Ratio:
 In 1962, the separate CRRs were merged and one
CRR came to be fixed as a certain % of both demand
and time liabilities with the maximum of 15% and
minimum of 3%.
The RBI has powers to impose penal interest rates
on banks in respect of their shortfall in the prescribed
CRR. The penal interest rate is normally 3% above
the Bank Rate for the first week of default and 5% for
the subsequent weeks till the default is made good.

44. Statutory Liquidity Ratio: (SLR)
 The SLR is the ratio of cash in hand (exclusive
of cash balances maintained by banks to meet
the required CRR, but not the excess reserves);
balances in current account with the SBI, its
subsidiaries, other nationalised banks and the
RBI, Gold and approved securities i.e., central
and state government securities, securities of
local bodies and government-guaranteed
securities to the Demand and Time Liabilities
(DTL) of banks.

45. Statutory Liquidity Ratio: (SLR)
 In addition to the CRR, the RBI has made
active use of another ratio namely the SLR,
while the CRR enables the Bank to impose
primary reserve requirements, the SLR enables
it to impose secondary and supplementary
reserve requirements, on the banking system.

46. Statutory Liquidity Ratio: (SLR)
There are three objectives behind the use of
SLR:
a. To restrict expansion of bank credit.
b. To augment (increase) banks’ investment
in government securities and
c. To ensure Solvency of banks.

47. Statutory Liquidity Ratio: (SLR)
YEAR SLR %
1950 20
1964 20 – 25
1969 -70 25 – 28
1971 – 72 28 – 30
1983 35
1989 38
2004 – 07 25

48. Statutory Liquidity Ratio: (SLR)
The RBI is empowered to increase the SLR for
scheduled commercial banks up to 40%.
An increase in the SLR does not restrain total
expenditure in the economy, it may restrict only
the private sector expenditure while helping to
increase the government expenditure.
Therefore, the SLR is not a technique of
monetary control; it only distributes bank
resources in favour of the government sector.

49. QUANTITATIVE - TOOLS
• Bank Rate- The rate at which RBI extends
credit to commercial banks.
• CRR – The % of bank’s deposits which they
must keep as cash with RBI.
• SLR – A commercial Bank has to keep a
portion of total deposits with itself in liquid
assets.

50. Direct Credit Allocation and Credit
Rationing:
With the passage of time, the distribution or
allocation of credit among different sectors,
borrowers, and users was increasingly achieved
through the fixation of specific and direct
quantitative credit ceilings or credit targets.
This technique was first introduced in
November, 1973.

51. Direct Credit Allocation and Credit
Rationing:
The RBI has been stipulating certain targets for
credit distribution to various sectors. For
example, in November 1974, banks were
advised that their priority sector lending should
reach a level of not less than one-third of their
outstanding credit by March 1979.
Subsequently, on October 1980, the banks
were instructed that their:

52. Direct Credit Allocation and Credit
Rationing:
A. Priority sector advances should constitute 40% of
aggregate bank advance by 1985
B. Advances to the agricultural sector should be 40%
of the priority sector advances, or at least 16% of
total bank advances by 1985.
C. Direct advance to weaker sections in the
agricultural sector should be at least 50% of total
direct lending to agriculture by 1983.
D. Advances to rural artisans, village craftsmen and
cottage industries should be 12.5% of the total
advances to small-scale industries by 1985.

53. Direct Credit Allocation and Credit
Rationing:
•In order to achieve regional or geographical
balance in respect of Credit Disbursal, the RBI
has been asking banks to achieve a certain
prescribed credit-deposit ratio in respect of their
rural and semi-urban branches separately.
•Normally, they have been asked to achieve a
credit-deposit ratio of 60% in this context.

54. Selective Credit Controls:(SCC)
This is the most actively used technique in
India. The seasonal nature of the Indian
economy and the nature of inflation therein,
have SCCs particularly useful in out context,
SCCs seek to change the composition of Credit;
they are used to reduce the supply of Credit in
certain directions and to encourage it in desired
directions.

55. Selective Credit Controls:(SCC)
They have been used particularly to prevent
speculative hoarding of sensitive commodities
such as paddy, rice, wheat, pulses, oil-seeds,
oils and vanaspati, cotton sugar and so on.
They are now applied both to commercial and
co-operative banks. Till, 1967, they were
confined to commercial banks only.

56. Credit Authorization Scheme:
This technique was introduced in November, 1965
with a view to regulate the volume and terms of credit
supplied to large borrowers.
It had the following objectives:
a. To regulate credit to control inflation.
b. To enforce financial discipline on large borrowers do
not monopolies scarce bank credit and
c. To ensure that credit is supplied in accordance with
the needs of borrowers and the goals of planning.

57. Credit Authorization Scheme:
As per this scheme, if the fresh working capital limit
to be sanctioned to any single party by any one bank
or the entire banking system exceeded a stipulated
level, the bank would require prior authorization of the
RBI for sanctioning such a loan.
This stipulated level or cut-off point was fixed at One
Crore in the beginning; it was subsequently increased
to Two Crores in November 1975 and so on after 1983
it is increased to Six Crores.

58. Credit Authorisation Scheme:
The Scheme was in operation for more than 20
years, but in the1988, the RBI decided to withdraw the
scheme after a review of its working.
In its place, a system of post-sanction scrutiny,
namely Credit Monitory Arrangement (CMA) was
introduced.
As per this, credit proposals for Five Crores and
above in the case of working capital, and Two Crores
and above in the case of term loans, had to submitted
to the RBI for post-sanction scrutiny.

59. The Reserve Bank of India, in its monetary policy meet
decided to keep the key policy rates unchanged after
two emergency rate cuts amid the COVID-19
disruptions and its ensuing economic fallout.
Latest Policy rates
CRR Rate 3
SLR Rate 18
Repo Rate 4
Reverse Repo Rate 3.35

60. RBI Monetary Policy Highlights:
MPC has decided that the repo rate will remain
unchanged amid the possibility of a high inflation.
Shaktikanta Das announced Rs 10,000 crore at repo
rate to NABARD and NHB to alleviate the liquidity
crisis.