ROLE OF RBI AND RAGHURAM

RAJAN PRESENTED BY -

ANUPRAS PANDA (14202223)

PINAKI RANJAN BHAKAT

(14202238)

ANTAREEP MAHAPATRA (14202231)

A ANIL DORA (14202241)

KUMAR NISHIKANT (14202240)

RATIKA MEHROTRA (14202216)

CONTENTS RBI

HISTORY

ROLE OF RBI

MONETARY POLICY

ISSUER OF CURRENCY

FOREX

MARKET OPERATION

DR. RAGHURAM RAJAN STEPS

VISION AND AGENDA OF RBI

RBI IN A NUTSHELL

HEADQUARTERS - SHAHID BHAGAT SINGH MARG

MUMBAI , MAHARASTRA

ESTABLISHED - APRIL 1, 1935 ( 79 YEARS AGO )

GOVERNOR - DR.RAGHURAM RAJAN

CURRENCY - INDIAN RUPEE

RESERVES - US$311.86 BILLION

BANK RATE - 9.00%

CRR - 4.00%

WEBSITE - HTTP://WWW.RBI.ORG.IN/

HISTORY

FOUNDED ON 1 APRIL 1935

“ THE PROBLEM OF THE RUPEE – ITS ORIGIN AND

ITS SOLUTION . “

HILTON – YOUNG COMMISION

RBI SEAL

CENTRAL OFFICE IN 1937

ROLE OF RBI MONETARY POLICY

ISSUER OF CURRENCY

FOREIGN EXCHANGE

MARKET OPERATION

MONETARY POLICY & ITS OBJECTIVE

THE POLICY STATEMENT, TRADITIONALLY

ANNOUNCED TWICE A YEAR, THROUGH

WHICH THE RESERVE BANK OF INDIA SEEKS

TO ENSURE PRICE STABILITY FOR THE

ECONOMY.

INSTRUMENTS OF MONETARY POLICY• 1. BANK RATE

• 2. CASH RESERVE RATIO

• 3. STATUTORY LIQUIDITY RATIO

• 4. REPO RATE

• 5. REVERSE REPO RATE

CRR VS SLR

HIGH CRR AND SLR

Total Deposit Rs.100

CRR: 15%SBI has to park this much amount of total deposit in RBI, without getting any interest.

-15

SLR: 38%SBI has to park this much amount of total deposit, in

Government securities / treasury bonds. SBI earns around 7.5%

interest rate on this investment.

-38

Money left with SBI 100-15-38=Rs.47

LOW CRR AND SLR

Total Deposit Rs.100

CRR: 4.75%SBI has to park this much amount of total deposit in RBI, without getting any interest.

-4.75

SLR: 23%SBI has to park this much amount of total deposit, in

Government securities / treasury bonds. SBI earns around 7.5%

interest rate on this investment.

-23

Money left with SBI 100-4.75-23=Rs.72.25

SUPPOSE TOTAL DEPOSIT DEPOSITED IN (BY YOU AND ME) STATE BANK OF INDIA =RS.100

ISSUER OF CURRENCY

DEFINITION OF ISSUER CURRENCY:

THE BANK ISSUES AND EXCHANGES OR DESTROYES CURRENCY NOTES AND COINS

THAT ARE NOT FIT FOR CIRCULATION.

OBJECTIVES:

A. PUBLIC ADEQUATE SUPS OF RBI ARE TO ISSUE BANKNOTES

B. MANAGEMENT OF CURRENCY

C. CREDIT SYSTEM OF THE COUNTRY TO UTILIZE IT IN IT’S BEST ADVANTAGE

CURRENCY MANAGEMENT AND CONSTRAINTS

• CURRENCY MANAGEMENT HAS A GREAT DEGREE

OF SIGNIFICANCE FOR CENTRAL BANKS

• BECAUSE OF THE SHEER SIZE OF OUR

POPULATION AND THE QUANTUM OF BANKNOTES

INDIA HAS EMERGED AS ONE OF THE BIGGEST

CONSUMERS OF THE INGREDIENTS THAT GO INTO

PRODUCTION OF BANKNOTES IN THE WORLD.

• THERE HAS BEEN A STEADY INCREASE IN THE

DEMAND FOR BANKNOTES AND COINS OVER THE

YEARS, DESPITE THE INCREASED USE OF

TECHNOLOGY-DRIVEN NON-CASH MODES OF

PAYMENTS/E-CURRENCY/VIRTUAL CURRENCY-BIT

COINS, ETC…

Year 2012/13

India USA UK EURO ZONE

AUSTRALIA

CANADA

No of Pieces(In Billion)

76.47 34.5 2.99 15.8n 1.15 2.00

Value in home currency terms

12468 billion

1198 billion

58billion

933.7 billion

53.6 billion

63.7 billion

COMPARATIVE PICTURE OF THE NOTES

CURRENCY MANAGEMENT IN INDIA- MAJOR CHALLENGES

THE SHEER SIZE OF POPULATION AND THE QUANTUM OF BANKNOTES REQUIRED. AS ON

DECEMBER 31, 2013, THERE IS A NETWORK OF 110,520 COMMERCIAL BANK BRANCHES AND

137,080 ATMS. THE NOTES IN CIRCULATION AS ON THE SAME DATE WAS APPROXIMATELY 76.47

BILLION PIECES VALUED AT ` 12, 468 BILLON WHILE THE COINS IN CIRCULATION WERE

AROUND 89.91 BILLION PIECES VALUED AT ` 168 BILLION.

ENSURING ADEQUATE SUPPLY OF ALL DENOMINATIONS

DISTRIBUTION AND SECURITY IN TRANSIT /STORAGE

DENOMINATIONSNOTE

DENOMINATION

THE INDIAN CURRENCY IS

CALLED INDIAN RUPEE AND

IT’S SUB-DENOMINATION IS

CALLED PAISA.

PROVISIONS OF RBI ACT

1934, NOTES >10000/- CAN’T

BE ISSUED.

COINS UP TO 50 PAISA ARE

CALLED SMALL COINS AND

COINS OF RUPEES ONE AND

ABOVE ARE CALLED RUPEE

COINS

PROVISIONS OF COINAGE

ACT 1906, COINS CAN BE

ISSUED UP TO THE

DENOMINATION OF RS.1000.

COIN DENOMINATION

FOREX EXCHANGE RESERVESIN INDIA, FOREIGN EXCHANGE RESERVES ARE DEFINED AS EXTERNAL ASSETS WHICH ARE READILY AVAILABLE TO & CONTROLLED BY RBI FOR MEETING BOP FINANCING NEEDS.

• THE TERM FOREIGN EXCHANGE IMPLIES TWO THINGS

• A) FOREIGN CURRENCY AND

• B) EXCHANGE RATE

FOREX RESERVES CONTD….AT PRESENT, RESERVES INCLUDE

FOREIGN CURRENCY ASSETS OF THE

RBI, GOLD & RESERVE TRANCHE

POSITION IN THE IMF WHICH

CONFORMS TO INTERNATIONAL BEST

PRACTICES AS SUGGESTED IN THE IMF

MANUAL.

SINCE 1993, THE RBI HAS INTERVENED

IN THE FOREX MARKET TO KEEP AN

ORDERLY MOVEMENT IN THE VALUE OF

THE RUPEE. THIS APPROACH KEPT THE

ECONOMY ON TRACK, BUT NOW THE

VOLATILITY IN RUPEE MOVEMENT

THREATENS ITS DERAILMENT.

RBI ACT,1934 PRESCRIBES AND FACILITATES RBI TO ACT AS THE CUSTODIAN OF FOREIGN RESERVES AND MANAGE THEM WITH DEFINED OBJECTIVES.

BOP CRISES 1991- INCREASED BORROWINGS FROM FOREIGN SOURCES IN THE LATE 1980’S WHICH HELPED FUEL ECONOMIC GROWTH .AUG 1990 IRAQ INVADED KUWAIT AND THE PRICE OF OIL SOON DOUBLE.

THE ‘RESERVES’ REFER TO BOTH FOREIGN RESERVES IN THE FORM OF GOLD ASSETS, FOREIGN SECURITIES AND DOMESTIC RESERVES IN THE FORM OF BANK RESERVES.

EVOLUTION OF RESERVE MANAGEMENT POLICY IN INDIA

ADVANTAGES OF FOREX MARKET IT’S ALREADY THE WORLD’S LARGEST MARKET AND IT’S STILL GROWING QUICKLY.

IT MAKES EXTENSIVE USE OF INFORMATION TECHNOLOGY MAKING IT AVAILABLE TO EVERYONE.

TRADERS CAN PROFIT FROM BOTH STRONG AND WEAK ECONOMICS

TRADERS CAN PLACE VERY SHORT TERM ORDERS WHICH ARE PROHIBITED IN SOME OTHER MARKETS.

THE MARKET IS NOT REGULATED.

BROKERAGE COMMISSIONS ARE VERY LOW OR NON-EXISTENT.

THE MARKET IS OPEN 24 HOURS A DAY DURING WEEKDAYS.

MARKET OPERATION OF RBI

OPEN MARKET OPERATION

LIQUIDITY ADJUSTMENT FACILITY ACTION

MARKET STABILIZATION SCHEME

DOMESTIC FOREIGN EXCHANGE MARKET OPERATION

MONEY MARKET

OPEN MARKET OPERATION & DOMESTIC FOREIGN EXCHANGE

CONDUCTED WITHIN THE RBI FRAMEWORK OF EXCHANGE

RATE OF MANAGEMENT POLICY

ALLOW UNDERLINE DEMAND AND SUPPLY CONDITIONS.

DETERMINE THE EXCHANGE RATE MOVEMENT OVER A

PERIOD

GUIDED BY THE NEED TO REDUCE EXCESS VOLATILITY

PREVENT THE EMERGENCE OF DESTABILISING

SPECULATIVE ACTIVITY.

HELP MAINTAIN ADEQUATE LEVEL OF RESERVE AND

DEVELOP AN ORDERLY FOREIGN EXCHANGE MARKET

OMO DOMESTIC FOREIGN EXCHANGE

LIQUIDITY ADJUSTMENT FACILITY ACTION

ALLOWS BANKS TO BORROW MONEY THROUGH REPURCHASE AGREEMENTS.

IT IS USED TO AID BANKS IN ADJUSTING THE DAY TO DAY MISMATCHES IN LIQUIDITY.

LAF CONSISTS OF REPO AND REVERSE REPO OPERATIONS.

MARKET STABILIZATION SCHEME ON THE RECOMMENDATIONS OF RBI ON FEBRUARY 23, 2004 MSS WAS INTRODUCED.

THE SCHEME IS EFFECTIVE FROM APRIL 2004

OBJECTIVES :

THE GOVERNMENT WOULD ISSUE TREASURY BILLS AND/OR DATED SECURITIES UNDER MSS FOR ABSORBING

LIQUIDITY FROM THE SYSTEM.

MONEY MARKET

INVOLVE BORROWING, LENDING, BUYING AND SELLING WITH ORIGINAL MATURITIES OF

ONE YEAR OR LESS.

TRADING IN THE MONEY MARKETS IS DONE OVER THE COUNTER AND IS WHOLESALE.

INSTRUMENTS:

TREASURY BILLS, COMMERCIAL PAPER, BANKERS' ACCEPTANCES, DEPOSITS, CERTIFICATES OF

DEPOSIT, BILLS OF EXCHANGE, REPURCHASE AGREEMENTS, FEDERAL FUNDS, AND SHORT-

LIVED MORTGAGE, AND ASSET-BACKED SECURITIES.

FUNCTIONS OF THE MONEY MARKET

FINANCING TRADE

FINANCING INDUSTRY

PROFITABLE INVESTMENT

SELF-SUFFICIENCY OF COMMERCIAL BANK

HELP TO CENTRAL BANK

THE FIVE PILLARS OF RAGHURAM RAJAN

REASONS WHY MARKETS ARE CHEERING DR. RAGHURAM RAJAN

THE INDIAN RUPEE JUMPED OVER 2 PER CENT AND THE BSE SENSEX CLIMBED AROUND 550

POINTS, A DAY AFTER RAGHURAM RAJAN TOOK OVER AS THE GOVERNOR OF CENTRAL BANK.

HERE'S WHY MARKETS ARE REACTING POSITIVELY TO DR. RAJAN'S PLANS:

1. HOPE AT LAST

2. CAPITAL INFLOWS

3. BETTER COMMUNICATIONS

4. RUPEE INTERNATIONALIZATION

5. INCLUSIVE DEVELOPMENT

6. FINANCIAL INFRASTRUCTURE

7. HOUSEHOLDS

RBI VISION & AGENDA FOR 2014-15 THE RESERVE BANK INTENDS TO FURTHER IMPROVE THE FINANCIAL SECTOR THROUGH A SERIES

OF INITIATIVES THAT REST ON FIVE PILLARS.

ITS WORK AGENDA INCLUDES WORKING WITH THE GOVERNMENT TO STRENGTHEN THE MONETARY

POLICY FRAMEWORK

SEVERAL COMPLEMENTARY STEPS, LIKE REFINING PRIORITY SECTOR GUIDELINES AND KYC (KNOW

YOUR CUSTOMER) NORMS ARE ALSO UNDER CONSIDERATION

BESIDES, ONGOING EFFORTS WILL REINFORCE THE REGULATORY AND SUPERVISORY REGIMES,

WITH A VIEW TO REDUCING DISTRESS IN FINANCIAL AND NON-FINANCIAL FIRMS

THE RBI WILL INTRODUCE 1 BILLION PIECES OF RS 10 NOTES IN POLYMER/PLASTIC ON A FIELD

TRIAL BASIS.

CONCLUSION• RESERVE BANK WAS ESTABLISHED IN 1935 WITH 100 MEMBER.

• NOW RBI HAS BEEN FULLY NATIONALIZED IN 1949.

• RBI UNDER ITS 23RD GOVERNOR DR. RAGHURAM RAJAN TAKING STEPS TO CURB THE ISSUES

LIKE INFLATION, CURRENT ACCOUNT DEFICIENT, GROWTH, MAINTAINING THE REVALUE OF

RUPEE.

• MORE IMPORTANT ON CORRUPTION RBI IS ALSO TAKING STEPS SUCH AS RETUNING OF ALL

NOTE UPTO 2005.