The document discusses the role and functions of the Reserve Bank of India (RBI) as the central bank of India. It outlines that the RBI regulates the financial sector, acts as a banker to the government and other banks, issues currency, controls money supply and credit, regulates foreign exchange, and works to promote economic development. The RBI fulfills various roles including monetary authority, regulator of the economy, controller of the banking system, and manager of payment systems. It uses tools like interest rates, cash reserve ratios, and open market operations to achieve its goals of maintaining price stability and economic growth.

1. HUL 213
 PRESENTED BY :-
1. ANURAG KUMAR – 2013CE10333
2. SHUBHAM VISHWAKARMA – 2013CH10124
3. VIRESH CHAUHAN – 2013CE10413

2. ROLE OF RBI IN INDIAN
ECONOMY

3. INTRODUCTION :
 The regulators of the Indian financial sector are –
 Reserve Bank of India
 Ministry of Finance (Income Tax Department)
 Foreign Exchange Dealers Association of India
 Deposit Insurance and Credit Guarantee Corporation
 Fixed Income Money Market
 In every country there is one organization which works as the central bank. The
function of the central bank of a country is to control and monitor the banking
and financial system of the country.
 In India, the Reserve Bank of India (RBI) is the Central Bank.

4. HISTORY :-
 Established in 1935 in accordance with the provisions of the Reserve Bank of India
Act, 1934
 This was based on the recommendations of the Royal Commission on Indian
Currency and Finance
(Hilton Young Commission) in 1926
 It was started as share holders bank with a paid up capital of 5 crores.
 Initially it was located in Kolkata.
 Permanently moved to Mumbai in 1937. Today the RBI has 22 regional offices,
mostly in State capitals.

5. Continued ……
 Initially it was privately owned.
 Since 1949 , the RBI is fully owned by the Government of India.
 Its first Governor was “Sir Osborne A. Smith”.
 The first Indian Governor was “ Sir Chintaman D. Deshmukh”.
 Present Governor – P Raghuram Rajan

6. ORGANIZATION STRUCTURE
Governor Deputy Governors Executive Directors
Chief general Manager Principle Chief General Manager
General Managers Deputy General Managers
Asst. Managers. Managers Asst. General Managers
Support Staffs

7. MAIN FUNCTIONS OF RBI
 Monetary Authority.
 Issuer of Currency.
 Regulator of Economy.
 Controller and Supervisor of Banking System.
 Bankers of the Government.
 Banker to the Banks.
 Managing Government Securities.
 Management of Foreign Exchange.
 Regulation and Supervision of the Payment and Settlement Systems.
 Money Supply and Credit Control System.
 Development Role.
 Publisher of Monetary Data and Other Data.
 Exchange Manager and Controller.

8. 1. Monetary Authority
 The main objectives of monitoring monetary policy are:
 Inflation control
 Control on bank credit
 Interest rate control
 The tools used for implementation of the objectives of monetary
policy are:
 Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR),
 Open market operations,
 Different Rates such as repo rate, reverse repo rate, and bank rate.

9. 2. Issuer of Currency
 The Reserve Bank is the nation’s sole note issuing authority.
 Along with the Government of India , RBI is the Responsible for
the design and production and overall management of the
nation’s currency with the goal of ensuring an adequate supply
of clean and genuine notes.
 The Reserve Bank also makes sure there is an adequate supply
of coins ,produced by government and also destroys currency
and coins not fit for circulation.
 The RBI also takes action to control circulation of fake currency.
 It brings uniformly to note issue and keeps the public faith in the
paper currency alive.

10. 3. Regulator of Economy
 Regulate by issuing guidelines and instruction:-
 Controlling money supply in system.
 Monitoring Different Key indicators (GDP, inflation, etc.).
 Maintaining people’s confidence in banking & financial
system.
 Providing different tools for customers.

11. 4. Controller and Supervisor of Banking
Systems
 The RBI is responsible for controlling the overall operations of all banks in
India.
 Such banks are:
 Public sector banks
 Private sector banks
 Foreign banks
 Co-operative banks, or
 Regional rural banks

12. The control and supervisory roles of the Reserve
Bank of India is done through the following:
Issue Of Licence : RBI grant licenses to commence new banking
operations. The RBI also grants licenses to open new branches for existing
banks. Under the licensing policy, the RBI provides banking services in areas
that do not have this facility.
Prudential Norms: RBI issues guidelines for credit control and management.
RBI is a member of the Banking Committee on Banking Supervision (BCBS).
As such, they are responsible for implementation of international standards
of capital adequacy norms and asset classification.

13. Corporate Governance: The RBI has power to control the appointment of
the chairman and directors of banks in India. The RBI has powers to appoint
additional directors in banks as well.
KYC Norms: To curb money laundering and prevent the use of the banking
system for financial crimes, The RBI has “Know Your Customer“ guidelines.
Every bank has to ensure KYC norms are applied before allowing someone to
open an account.
Transparency Norms: This means that every bank has to disclose their
charges for providing services and customers have the right to know these
charges.

14. Risk Management: The RBI provides guidelines to banks for taking the
steps that are necessary to mitigate risk. They do this through risk
management in basel norms.
Basel Norms: Rules for central bankers around the world.
Audit and Inspection: The procedure of audit and inspection is
controlled by the RBI through off-site and on-site monitoring system. On-site
inspection is done by the RBI on the basis of “CAMELS”. Capital adequacy;
Asset quality; Management; Earning; Liquidity; System and control

15. Foreign Exchange Control: The RBI plays a crucial role in foreign
exchange transactions. It does due diligence on every foreign
transaction, including the inflow and outflow of foreign exchange. It
takes steps to stop the fall in value of the Indian Rupee. The RBI also
takes necessary steps to control the current account deficit. They also
give support to promote export and the RBI provides a variety of
options for NRIs.
Development: Being the banker of the Government of India, the RBI
is responsible for implementation of the government’s policies related
to agriculture and rural development. The RBI also ensures the flow of
credit to other priority sectors as well. Section 54 of the RBI gives stress
on giving specialized support for rural development. Priority sector
lending is also in key focus area of the RBI.
Apart from the above, the RBI publishes periodical review and data
related to banking.

16. 5. Bankers of The Government
 RBI acts as banker, both to the central government and state governments.
 It manages all the banking transactions of the government involving the
receipt and payment of money.
 RBI remits exchange and performs other banking operations.
 RBI provides short-term credit to the central government. Such credit helps
the government to meet any shortfalls in its receipts over its disbursements.
 RBI also provides short term credit to state governments as advances.
 RBI also manages all new issues of government loans, servicing the
government debt outstanding, and nurturing the market for government’s
securities.
 RBI advises the government on banking and financial subjects, international
finance, financing of five-year plans, mobilizing resources, and banking
legislation

17. 6. Bankers To The Banks
 The role of RBI as a banker to other banks is as follows:
 Holds some of the cash reserves of banks
 Lends funds for short period
 Provides centralized clearing and quick remittance facilities.
 RBI has the authority to statutorily ensure that the scheduled .
 commercial banks deposit a stipulated ratio of their total net liabilities. This ratio is
known as cash reserve ratio [CRR].
 However, banks can use these deposits to meet their temporary requirements for
interbank clearing as the maintenance of CRR is calculated based on the average
balance over a period

18. 7. Managing Government Securities
 Various financial institutions such as commercial banks are required by law to
invest specified minimum proportions of their total assets/liabilities in
government securities.
 RBI administers these investments of institutions.
 The other responsibilities of RBI regarding these securities are to ensure -
Smooth functioning of the market
 Readily available to potential buyers
 Easily available in large numbers
 Undisturbed maturity-structure of interest rates because of excess or deficit supply
 Not subject to quick and huge fluctuations
 Reasonable liquidity of investments
 Good reception of the new issues of government loans

19. 8. Management of Foreign Exchange.
 RBI regulates transactions related to the external sector and
facilitates the development of the foreign exchange market.
 RBI buys and sells foreign currency to maintain the exchange rate of
Indian Rupee v/s foreign currencies like dollar, euro etc.
 The RBI is the custodian of the country’s foreign exchange reserves,
i.e., it is vested with the responsibility of managing the investment
and utilization of the reserves in the most advantageous manner.
 Managing the foreign currency assets and gold reserves of the
country.

20. 9. Regulator and Supervisor of Payment and
Settlement Systems
 The Payment and Settlement Systems Act of 2007 (PSS Act) gives the
Reserve Bank oversight authority, including regulation and supervision, for
the payment and settlement systems in the country.
 In this role Reserve Bank focuses on the development and functioning of
safe, secure and efficient payment and settlement mechanisms.

21. 10. Money Supply and Credit Control
System
 In a planned economy, the central bank plays an important role in
controlling the paper currency system and inflationary tendency.
 RBI has to regulate the claims of competing banks on money supply and
credit.
 RBI also needs to meet the credit requirements of the rest of the banking
system.
 RBI needs to ensure promotion of maximum output, and maintain price
stability and a high rate of economic growth.
 To perform these functions effectively, RBI uses several control
instruments such as –
 Open Market Operations
 Changes in statutory reserve requirements for banks
 Lending policies towards banks
 Control over interest rate structure
 Statutory liquidity ration of banks .

22. 11. Developmental Role
 This role includes the development of the quality of banking system in India and
ensuring that credit is available to the productive sectors of the economy.
 RBI performs a wide range of promotional functions to support national
objectives.
 It also includes establishing institutions designed to build the country’s financial
infrastructure. E.g.: NABARD, IDBI etc.
 Expanding access to affordable financial services and promoting financial
education and literacy.

23. 12. Publisher of Monetary Data and
other Data
 RBI maintains and provides all essential banking and other
economic data, formulating and critically evaluating the
economic policies in India.
 In order to perform this function, RBI collects, collates and
publishes data regularly.
 Users can avail this data in the weekly statements, the RBI
monthly bulletin, annual report on currency and finance, and
other periodic publications

24. 13. Exchange Manager and Controller
 RBI manages exchange control, and represents India as a member of the
international Monetary Fund [IMF].
 Exchange control was first imposed on India in September 1939 when
World War II started and continues till date. Exchange control was
imposed on both receipts and payments of foreign exchange.
 According to foreign exchange regulations, all foreign exchange
receipts, whether on account of export earnings, investment earnings, or
capital receipts, whether of private or government accounts, must be sold
to RBI either directly or through authorized dealers.
 Most commercial banks are authorized dealers of RBI.

25. Supervisory Functions of RBI
 Granting license to banks & controlling the opening of new
branches
—Bank Inspection
 Control over Non-Bank Financial Institutions: The Non-Bank Financial
Institutions are not influenced by the working of a monitory
policy. RBI has a right to issue directives to the NBFIs from time to
time regarding their functioning.
 Implementation of the Deposit Insurance Scheme: In order to protect the
deposits of small depositors, RBI work to implement the Deposit
Insurance Scheme in case of a bank failure. (For bank deposits
below 1 Lakh.)

26. Role of RBI in Economic Development
 Development of banking system.
 Development of financial institutions.
 Development of backward areas.
 Economic stability.
 Economic growth.
 Proper interest rate structure.
 Miscellaneous

27. Promotional Role of RBI
 Promotion of commercial banking
 Promotion of cooperative banking
 Promotion of industrial finance
 Promotion of export finance
 Promotion of credit to weaker sections
 Promotion of credit guarantees
 Promotion of differential rate of interest scheme
 Promotion of credit to priority sections including rural & agricultural
sector.....