Entry and exit loads are applicable while investing through SIP option also. However, in this example, load has not been taken into consideration for the purpose of simplification.
Role of rbi as a regulator
“Role of Reserve Bank of India as
School of Management Studies
Motilal Nehru National Institute of Technology, Allahabad
Table of Contents
• Introduction to RBI
• Main Activities of RBI
• Monetary Authority
• Regulator of the Banking System
• Regulator of Payment and Settlement System
• Regulator of the Credit
• Regulator of the Foreign Exchange
• Regulator of the Financial System
Introduction to RBI
• The central bank of the country is the Reserve Bank of India (RBI).
• It was established in April 1935 with a share capital of Rs. 5 crores on the
basis of the recommendations of the Hilton Young Commission.
• The share capital was divided into shares of Rs. 100 each fully paid which
was entirely owned by private shareholders in the beginning.
The Government held shares of nominal value of Rs. 2,20,000.
Introduction to RBI
The Bank was constituted for the need of following:
• 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 to its advantage.
•Maintaining price stability
•Ensuring adequate flow of credit
to the productive sectors of the
economy to support economic
•The relative emphasis among the
objectives varies from time to
time, depending on evolving
•Cash Reserve Ratio (CRR): The
share of net demand and time
liabilities that banks must maintain
as cash balance with the Reserve
(SLR): The share of net demand
and time liabilities that banks must
maintain in safe and liquid assets,
such as government securities,
cash and gold.
• Refinance facilities: Sectorspecific refinance facilities
Liquidity Adjustment Facility (LAF): Consists of daily infusion or absorption of
liquidity on a repurchase basis, through repo (liquidity injection) and reverse repo
(liquidity absorption) auction operations, using government securities as collateral.
Repo/Reverse Repo Rate: These rates under the Liquidity Adjustment Facility
(LAF) determine the corridor for short-term money market interest rates. In turn,
this is expected to trigger movement in other segments of the financial market and
the real economy.
Open Market Operations (OMO): Outright
sales/purchases of government
securities, in addition to LAF, as a tool to determine the level of liquidity over the
Marginal Standing Facility (MSF): was instituted
under which scheduled
commercial banks can borrow over night at their discretion up to one per cent of
their respective NDTL at 100 basis points above the repo rate to provide a safety
valve against unanticipated liquidity shocks
Bank Rate: It is the rate at which the Reserve Bank is ready to buy or rediscount
bills of exchange or other commercial papers. It also signals the medium-term stance
of monetary policy.
the Banking System
The Reserve Bank regulates and supervises the nation’s financial system. Different
departments of the Reserve Bank oversee the various entities that comprise India’s
financial infrastructure. They oversee:
Urban cooperative Regional Rural
and Cooperative Banks
supervised by the and State CoUrban
Banks operative Banks:
Regulated by the
Regulated by the
Rural Planning and
supervised by the
Tools of RBI
• On-site inspections
• Off-site surveillance, making use of required reporting by the regulated
• Thematic inspections, scrutiny and periodic meetings
• The Board for Financial Supervision oversees the Reserve Bank’s
regulatory and supervisory responsibilities.
The RBI’s Regulatory Role
• Prescribing capital requirements
• Monitoring governance
• Setting prudential regulations to ensure solvency and liquidity of the banks
• Prescribing lending to certain priority sectors of the economy
The RBI’s Regulatory Role
• Regulating interest rates in specific areas
• Setting appropriate regulatory norms related to income recognition, asset
classification, provisioning, investment valuation, exposure limits .
• Initiating new regulation
For commercial banks: Focus is on implementing Basel III norms, which will
require improved capital planning and risk management skills.
For urban cooperative banks: Focus is on profitability, professional management
and technology enhancement.
For NBFCs: Focus is on identifying the interconnections and the roles these
institutions should play as the financial system deepens.
For regional rural banks: Focus is on enhancing capability through IT and HR for
serving the rural areas.
For rural cooperative banks: Focus is on ensuring that they meet minimum
RBI as 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, RBI focus on the development and functioning of safe, secure and
efficient payment and settlement mechanisms.
The Reserve Bank has a two-tiered structure. The first tier provides the basic
framework for our payment systems. The second tier focuses on supervision of this
RBI as a Regulator of Credit
The Reserve Bank of India is the controller of credit i.e. it has the power to
influence the volume of credit created by banks in India.
It holds the cash reserves of all the scheduled banks.
It controls the credit operations of banks through quantitative and qualitative
It controls the banking system through the system of licensing, inspection and
calling for information.
It acts as the lender of the last resort by providing rediscount facilities to scheduled
It can do so through changing the Bank rate or through open market operations.
RBI as a Regulator of Foreign Exchange
The RBI is responsible for administration of the Foreign Exchange Management
Act,1999 and regulates the market by issuing licences to banks and other select
institutions to act as Authorized Dealers in foreign exchange. The Foreign
Exchange Department (FED) is responsible for the regulation and development of
Regulating transactions related to the external sector and facilitating the
development of the foreign exchange market.
Ensuring smooth conduct and orderly conditions in the domestic foreign exchange
Managing the foreign currency assets and gold reserves of the country
Regulator and Supervisor of the Financial
The institution is also the regulator and supervisor of the financial system and
prescribes broad parameters of banking operations within which the country's
banking and financial system functions.
Its objectives are to maintain public confidence in the system, protect depositors'
interest and provide cost-effective banking services to the public.
The Banking Ombudsman Scheme has been formulated by the Reserve Bank of
India (RBI) for effective redress of complaints by bank customers.
The RBI controls the monetary supply, monitors economic indicators like the gross
domestic product and has to decide the design of the rupee banknotes as well as
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