1) The Reserve Bank of India (RBI) is India's central bank. It was established in 1935 and nationalized in 1949. RBI performs traditional central banking functions like issuing currency, acting as a banker to the government and banks, and maintaining foreign exchange reserves. 2) RBI also regulates the banking system through tools like the cash reserve ratio (CRR), which requires banks to hold a portion of deposits with RBI, the repo rate at which banks borrow from RBI, and the reverse repo rate at which RBI borrows from banks. 3) Other RBI functions include acting as a lender of last resort, controlling credit in the economy, collecting and publishing banking data, and

1. Gandhinagar Institute Of
Technology
Engineering Economics & Management
Active Learning Assignment
Prepared by:
Aniruddh Joshi 001
Dheeraj Yadav 010
Abhishek Rana Guided By – Prof. Prashant Pandya
Branch : Electrical

2. TOPIC
Central Bank – Reserve Bank of India, its function and some following concepts
CCR (Cash Reserve Ratio), Bank Rate, Repo (repurchase) Rate,
Reserve Repo Rate, Call Rate.

3. CENTRAL BANK – RESERVE BANK OF INDIA
The Reserve Bank of India is the central bank of India, it was
established as a shareholder’s bank on 1st April 1935. On 1st January
1949 it was nationalised. Its headquarters is at Mumbai. RBI, like any
other bank performs almost all traditional Central Banking function.
Due to country’s development it has also undertaken developmental
& promotional function.

4. FUNCTIONS OF RBI (RESERVE BANK OF INDIA)
Issue of Currency Notes: Under section 22 of RBI act the bank has the right
to issue currency notes of all denominations except one rupee coins and
notes. The one rupee notes & coins & small coins are issued by Central
Government & their distribution is undertaken by RBI as the agent of
government. The RBI has separate issue department which is entrusted
with the issue of currency notes.

5. Banker to the Government: The RBI acts as a banker agent and adviser to the
government. It has obligation to transact the banking business of Central
Government as well State Government. E.g.: RBI receives and makes all
payments on behalf of government, remits its fund, buys and sells foreign
currencies for it & give it advice on all banking matters. RBI helps the
Government; both central ad state to float new loans and manage public debt.
The bank makes ways & meets advances of the government. On behalf of
central government it sells treasury bills & there by provides short term
finance.

6. Banker’s bank & Lender of Last Resort: RBI acts as a banker to other bank. It
provides financial assistance to scheduled bank and state co-operative banks in
form of rediscounting of eligible bills & loans and advances again approved
securities. RBI acts as a lender of last resort. I provides funds to bank when
they fail to get it from other sources. It also acts as a clearing house
Controller of Credit: RBI has the power to control the volume of credit created
by banks. The RBI through its various quantitative & qualitative technique
regulates total supple of money & bank credit in the interest of economy. RBI
pumps in the money during busy season & withdraw money during slack
season.

7. Exchange Control & Custodian of Foreign Reserve: RBI has the responsibility
of maintaining fixed exchange rate with all member countries of IMF. For this.
RBI has centralised all foreign exchange reserve. RBI function as custodian of
nation’s foreign exchange reserve. It has to maintain external value of rupee.
Collection and Publication of Data: The RBI collects & complies statistical
information on banking and financial operation of the economy. The reserve
bank of India’ Bulletins is a monthly publication. It not only provide
information, but also results of important studies and investigation conducted
by reserve bank are given. ‘The report on currency & finance is an annual
publication. It provides review of various developments of economics &
financial important.

8. Regulatory & Supervisory Function: The RBI has wide power of supervision
and control over commercial & co-operative bank, relating to licensing,
establishment, branch expansion, management & methods of working. The
supervisory function of RBI have helped a great improving the standard of
banking in India to develop & improve the methods of their operation.
Clearing house finance: The RBI acts as clearing house for all member
banks. This avoids unnecessary transfer of funds between the various banks.

9. Development & Promotional Functions: The RBI has helped in setting up
Industrial Finance Corporation of India (IFCI), State Financial Corporation
(SFCs), Deposit Insurance Corporation, Agriculture Refinance &
Development Corporation (ARDC) etc. these institutions were set up to
mobilize saving, & to provide industrial and agricultural finance.

10. SOME BASIC CONCEPTS
CCR: CCR is also called the cash reserve ratio, refers to a portion of deposit
which banks have to keep with the RBI. This serves two purposes. It ensures
that a portion of bank deposits is totally risk free & secondly it enables that
RBI control liquidity in the system.
Bank Rate: This is a rate at which RBI lends money to other bank. The bank
rate signals the central banks long term outlook on interest rates. If the bank
rate moves up, long term interest rates also tend to move up & vice-versa.
Banks make a profile by borrowing at a lower rate and leading the same
funds as a higher rate of interest.

11. Repo (Repurchase) Rate: Repo rate is the rate at which banks borrow funds
from the RBI to meet the gap between the demands they are facing for
money & how much they have on hand to lend. If the RBI wants to make it
more expensive for the banks to borrow money, it increases the repo rate;
similarly, if it wants to make it cheaper for banks to borrow money, it reduces
the repo rate.
Reverse Repo Rate: This is the exact opposite of repo rate. The rate at which
RBI borrows money from the banks is termed the reverse repo rate. The RBI
uses this tool to when it feels there is too much money floating in the
banking system. If the reverse repo rate is increase, it means the RBI will
borrow money from the bank and offer them a lucrative rate of interest. As a
result, banks would prefer to keep this money with RBI instead of lending it
out. This helps steam the flow of excess money in to the economy.

12. Call Rate: Call rate is the interest rate paid by banks for lending &
borrowing for daily fund requirement. Since banks need funds on a daily
basis, they lend to and borrow from other banks according to their daily
or short term requirement on a regular basis.

13. Bibliography
EEM BY PRASHANT R. PANDYA