Regulatory Role of RBI and Its Monitory Policy

7/25/2019 Regulatory Role of RBI and Its Monitory Policy

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RBI & its MonetaryPolicy


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LIST OF CONTENTS

RBIs HistoryNeed for RBI

Functions of RBI

Non-Monitory functions of RBIMonitory functions of RBI

Tools of Monitory Policy

Quantitative tools

Qualitative tools Selective and Direct credit controls

Current Monitory Policy

Purcase Po!er Parity "PPP#2

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Reserve Bank of India

Te central $an% of te country--Reserve Ban% of India "RBI#&

'sta$lised in ()ril *+, !it a sare ca)ital of Rs& crores on te $asis of tereco..endations of te Hilton /oun0 Co..ission&

Te sare ca)ital !as divided into sares of Rs& *11 eac fully )aid u) !ic!as entirely o!ned $y )rivate sareolders in te $e0innin0&

Te 2overn.ent eld sares of no.inal value of Rs& 34314111&

Reserve Ban% of India !as nationali5ed in te year *+6+

No of .e.$ers on central $oard is 31 "incl& 0overnor and 6 de)uty 0overnors#3

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Need for the Reserve

BankThe Reserve Bank of India Act, 1934was commenced on Apri 1, 193!"The Act, 1934 #II of 1934$ provides the

stat%tor& 'asis of the f%nctionin( of theBank"

The Bank was constit%ted for the needof foowin()To re(%ate the iss%e of 'anknotesTo maintain reserves with a view to

sec%rin( monetar& sta'iit& andTo operate the credit and c%rrenc&

s&stem of the co%ntr& to its advanta(e"


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Fnctions of Reserve Bankof India

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The Reserve Bank of India !ct of "#$% contains a theimportant f%nctions of a centra 'ank to the Reserve Bank ofIndia"

Bank of Isse

*nder +ection 22 of the Reserve Bank of India Act, the Bank hasthe soe ri(ht to iss%e 'ank notes of a denominations"

Banker to overn'ent

The second important f%nction of the reserve 'ank of India is to actas (overnment 'anker, a(ent and adviser" RBI carries o%t 'ankin(operations #e"(" to receive and make pa&ments, carr& cashreserves$ for a (overnments ecept -.acts as advisor to (ovt

on a monetar& and 'ankin( matters"Bankers( Bank and Lender of the Last Resort

The sched%ed 'anks can 'orrow from the Reserve Bank of Indiaon the 'asis of ei(i'e sec%rities or (et nancia accommodationin times of need or strin(enc&" Banks have 'een asked to keepcash reserves e%a to 3 percent of their a((re(ate deposit

ia'iities"


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Fnctions of Reserve Bankof India

Controller of CreditThe Reserve Bank of India is the controer of credit i"e" ithas the power to in%ence the vo%me of credit created'& 'anks in India" It can do so thro%(h chan(in( the Bank

rate or thro%(h open market operations"

Controller of 'oney 'arket

The Reserve Bank of India is armed with man& morepowers to contro the Indian mone& market

Cstodian of forei)n e*chan)e reserves

Besides maintainin( the rate of echan(e of the r%pee,the Reserve Bank has to act as the c%stodian of Indias

reserve of internationa c%rrencies" +,-.


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!/ TR!0ITION!L

F1NCTIONS1" 5onopo& of c%rrenc& notes iss%e2" Banker to the 6overnment#'oth the centra andstate$

3" A(ent and advisor to the 6overnment4" Banker7s Bank!" Acts as the cearin( ho%se of the co%ntr&8" ender of the ast resort #B R :$;"


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B/ PROMOTION!LF1NCTIONS

1" :romotion of 'ankin( ha'it and epansion of'ankin( s&stems"

2" :rovides renance for eport promotion" #> : < 6$

3" >pansion of the faciities for the provision of thea(ric%t%ra

credit thro%(h @ABAR"

4" >tension of the faciities for the sma scaeind%stries"

!" epin( the


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C/ S1PER2ISOR3 F1NCTIONS

1" 6rantin( icense to Banks"2" Inspectin( and makin( en%ir& or determinin(position in

respect of matters %nder vario%s sections of RBIand Bankin(

re(%ations"3" :eriodica review of the work of the commercia'anks"4" 6ivin( directives to commercia 'anks"!"


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Non Monetary Fnctions

Role as S4ervisor

RBI enEo&s wide powers of s%pervision and controover commercia and coCoperative 'anks, reatin( to

icensin( and esta'ishments, 'ranch epansion, i%idit& of their assets, mana(ement and methods of workin(, ama(amation, reconstr%ction, and i%idation"The RBI is a%thoriFed to carr& o%t periodica

inspections of the 'anks and to ca for ret%rns andnecessar& information from them""

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Non Monetary Fnctions

Pro'otional fnctions

The maEor f%nction of Reserve Bank is to promote 'ankin(ha'it, etend 'ankin( faciities to r%ra and semiC%r'anareas, and esta'ish and promote new speciaiFed nancin(

a(encies" Accordin(&, the Reserve Bank has heped in the settin( %p

of the

I?


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Monetary Policy

5hat is 'onetary 4olicy6

A macroeconomic poic& too %sed toin%ence interest rates, ination, andcredit avaia'iit& thro%(h chan(es inthe s%pp& of mone& avaia'e in the

econom&" In India it is aso caed theReserve Bank of India7s Credit Policyas the stress is primari& on directin(

credit" "-,-.


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Monetary Policy of RBICONTROLLED EXPANSION(1951-72)

Speed up economic development in the country to raisenational income and standard of living.

To prevent heavy depreciation of the rupee.

Maintaining the momentum of economic growth. Toconsider measures in a calibrated manner to respond toevolving circumstances with a view to stabilizinginflationary expectations.

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RBIs ANTI-INFLATIONARY POLICY SINCE 1972

Economic aims given above were nearly the same but policyof C!T"##E$ E%&'!S(! was changed to C"E$(T"EST"'(!T.


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TOOLS OF MONET!R3 POLIC3

"%,-.

There are two )inds of tools*

Quan!a!"# $$%s+control the volume ofcredit and inflation, indirectly.

Qua%!a!"# $$%s+they control the supply

of money in selective sectors of the economy.


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7antitative Tools

Ban& Ra#Bank Rate is the rate at which "-( allows finance to commercial ban)s.-an) "ate is a tool, which "-( uses for shortterm purposes. 'ny revision in-an) "ate by "-( is a signal to ban)s to revise deposit rates as well as&rime #ending "ate.

"ole of ban) rate is limited in (ndia becauseThe structure of interest rates is administered by "-(

Commercial ban)s en/oy specific refinance facilities.

CRR'll scheduled commercial ban)s are re0uired to maintain a fortnightlyminimum average daily cash reserve e0uivalent with "-( .The apex ban) isempowered to vary this ratio between 1 and 23 per cent. "-( uses CRReither to impound the excess li0uidity or to release funds needed for the

economy from time to time. "8,-.


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SLR

'very $an% is re7uired to .aintain at te close of $usiness everyday4 a .ini.u. )ro)ortion of teir Net De.and and Ti.e 8ia$ilitiesas li7uid assets in te for. of cas4 0old etc4 in addition to casreserve re7uire.ents& Te ratio of li7uid assets to de.and and ti.elia$ilities is %no!n as Statutory Liquidity Ratio (SLR).PresentSLR is 24%.

"+,-.

Repos and Reverse Repo

RBI is empowered to enter a transaction in which two parties agree to selland repurchase the same security. Under such an agreement the seller sellsspecified securities with an agreement to repurchase the same at a mutuallydecided future date and a price. Similarly the !uyer purchases the securities

with an agreement to resell the same to the seller on an agreed date in futureat a predetermined price. Such a transaction is called a Repowhen "iewedfrom the prospecti"e of the seller of securities #the party ac$uiring fund andReverse Repowhen descri!ed from the point of "iew of the supplier offunds. &hus whether a gi"en agreement is termed as Repoor a ReverseRepodepends on which party initiated the transaction.


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(n instru.ent of .onetary )olicy

It involves $uyin0 and sellin0 of 0ovt& securities $y te

RBI to influence te volu.e of cas reserves !it

co..ercial $an%s and tus influence teir loans andadvances

To contract te flo! of credit 4RBI starts sellin0 0ovt

securitiesTo increase te credit flo! RBI starts )urcasin0 te

0ovt securities&

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OPEN MARKET OPERATIONS


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Selective and 0irect CreditControl Or 7alitativeMeasresTe .ain o$9ective is to cec% s)eculation and

risin0 )ricesTe RBI issues directives to $an%s relatin0 to

te )ur)ose for !ic advances .ay or .aynot $e .adeTe .ar0ins to $e .aintained in res)ect of

secured advances

Te .a:i.u. a.ount of advance to any$orro!erTe .a:i.u. a.t& of 0uarantee tat can $e

0iven on $ealf of any fir.":,-.


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;inds of Selective CreditControls

S)ecifies .ini.u. .ar0ins for lendin0a0ainst s)ecific securities

Ceilin0 on a.t of credit for certain )ur)oses to

ste. te flo! of credit to s)eculative and non)roductive sectors

Car0es discri.inatory rate of interest on

certain ty)es of advances

"#,-.

Documents

Regulatory Role of RBI and Its Monitory Policy