Brief description of Reserve Bank Of India

1. Reserve Bank of India
BY ALOK SINGH(KANPUR)
ALOK.LPU@YAHOO.COM

2. • The Reserve Bank of India was established
in 1935 under the provisions of the Reserve Bank
of India Act, 1934.
• Headquarters at Mumbai
• Full-time officials : Governor and not more than
four Deputy Governors. The current Governor of
RBI is Mr. Urjit Pattel.
There are 3 Deputy Governors presently – B P
Kanungo, N S Vishwanathan and Viral V Acharya.

3. • Nominated by Government: ten Directors
from various fields and two government
Officials
• Others: four Directors – one each from four
local boards

4. Importance of CRR and SLR

5. • When banks source deposits from us, their
primary objective is to lend to earn a ‘spread’.
• Left to themselves, banks may like to
maximise their lending and keep their idle
cash at a minimum so that profits are higher.
• But if much of the funds are lent out and
there’s a sudden rush to withdraw, banks will
struggle to meet the repayments.

6. • It is to avoid this situation that the RBI
specifies both a CRR and an SLR (Statutory
Liquidity Ratio) for banks.
• The CRR (4 per cent of NDTL) requires banks
to maintain a current account with the RBI
with liquid cash. The SLR (20.75 per cent of
NDTL) requires banks to invest in safe and
quickly saleable assets such as government
securities.

7. • While ensuring some liquid money against
deposits is the primary purpose of CRR,
• Its secondary purpose is to allow the RBI to
control liquidity and rates in the economy.
• In the short term, interest rates swing up or
down depending on how much liquidity is
available for lending.
• Too much money leads to a collapse in rates.

8. Why a depositor should care about
CRR and SLR
• As a depositor, the CRR and SLR requirements
together ensure that a fourth of your deposits
with Indian banks remain secure, even if
banks make poor lending decisions.

9. Why a Bond market investor should
care about CRR and SLR
• If you are a bond market investor, it is as
important to watch the CRR and SLR
requirements of the RBI as it is to watch its
repo rate actions. It is liquidity that decides
the short-term direction of interest rates in
the market.

10. Why a Bond market investor should
care about CRR and SLR
• If you are a bond market investor, it is as
important to watch the CRR and SLR
requirements of the RBI as it is to watch its
repo rate actions. It is liquidity that decides
the short-term direction of interest rates in
the market.