RBI FUNCTIONS.pdf

RESERVE BANK OF INDIA: ROLE AND FUNCTIONS
I
II
NOTE
ISSUING
AUTHORITY
Banker to the
Government
Issuance of Bank
Notes
Minimum Reserve
System
Banking Business
Public Debt
Management
Open market
Operations
RBI is empowered to issue currency notes of the denominations of 2, 5, 10, 50,
100, 500, 1000,
5000, 10000. They bear the signature of Governor of RBI
5000, and 10000 rupee notes are not in circulation
Re. 1 note issued by Ministry of Finance. It bears the signature of Secretary,
Ministry of Finance
In India the note issue is based on the Minimum Reserved System. The issue
department of RBI issues bank notes against 100% backing of approved assets (
i.e. Gold coins, Bullion, Foreign securities, rupee coins, Govt of India rupee
securities ,bills of exchange and promissory notes.), out of which the value of Gold
coins and foreign securities should not be less than 200 crores.
RBI is obliged to transact banking business and manage the public debts of the
Central Government, and state Governments.
Public debt management includes issuance of Treasury bills (Short term fund
requirements) and Government dated bonds (Long term fund requirements), by
RBI on behalf of Central / state Governments
Conducting the Open Market Operations in respect of Treasury Bills and
Government
Securities
Ways and Means
Advances
RBI provides the Ways and Means advances to Central and state Governments
for their short term requirements ( Normally for about 3 months)
III
IV
Controlling
the Money
supply
Credit
Supply
Monetary Policy
Credit Control
Instruments
RBI controls the money supply in the economy, co curb inflationary and
deflationary tendencies.
the Monetary Policy is announced once in a year.
RBI ensures the monetary and credit supply through various instruments.
Some of them are as follows. These instruments are used by RBI either to
infuse the liquidity or suck the excess liquidity with banks / economy

Bank Rate
CRR
It is the rate at which RBI rediscounts the Bills of commercial banks. Presently it
is 8%
Cash Reserve Ratio: It specifies the cash balances required to be maintained by
banks RBI as a specific percentage on their adjusted net demand and time
liabilities.CRR is hiked by RBI to curb the inflation. Presently it is 4%
SLR
Statutory Liquidity Ratio. It specifies the minimum investment by a Bank in the
approved securities. It is mentioned as a percentage of adjusted demand and time
liabilities of a Bank. Presently it is 22%. . A higher percentage may be specified
by RBI (Presently the maximum is 40%), to curb the excess liquidity with a Bank.
V
Banker to
Banks
Open Market
Operations
Selective Credit
Control
Market
stabilization
scheme
Fixation of
Inventory Norms
Directed Lending
Control over
Interest rates
Licensing
Authority
Scheduled Bank
Status to banks
Refinance
Open market operations include the buying and selling of government securities.
When the economy is having the excess liquidity RBI sells government securities
at attractive rate of interest, so that people having excess money invest money in
these securities there by excess liquidity in the economy is removed.
This is a Qualitative Control. RBI stipulates higher margin and rate of interest in
respect of loans and advances against essential commodities and some other
selected items to ensure hoarding of stock and black marketing.
Normally RBI borrows funds from whenever required by Government. Sometimes
RBI resorts to public borrowing to suck the excess liquidity in the economy.
Whenever required RBI fixes the Inventory norms for banks finance Eg: Tandon
Commiittee norms, Chore Committee norms, Nayak committee norms.
RBI specifies the targets to be achieved by banks in respect of certain sector. Eg:
Priority sector advances. 40% to priority sectors, 18% to weaker sections etc
Even though the deposit interest rates and lending rates are deregulated , certain
interest rates like interest rate on S.B a/c (4%),Inte4rest rates on export credit etc
are regulated by RBI
A bank should comply with the minimum stipulations of RBI to do banking
business
A bank whose name is entered in the second schedule to the BR Act is called a
scheduled bank
Finance against the long term loans to the borrowers

Rediscounting of
Bill
Liquidity
Adjustment
Facility
Lender of last
resort
Liquidity to banks against the bills discounted by them to their clients
Repo and Reverse Repo both put together is called Liquidity adjustment facility.
RBI finances to banks against purchase of securities upon a condition that such
securities are sold back by RBI to concerned bank on repayment of the loan.
Presently the Repo rate is 8%.
Reverse repo facilitates the banks to park their excess funds with RBI. Now the
Reverse Repo rate is 7%
Banks look towards RBI as a lender of last resort.
VI
Regulator of
Financial
system
VII Management
of Forex
Reserves
VIII Improvement
of Customer
service in
Bank
Regulation of
Financial Markets
Rating System for
Banks
Issuance of
directions to
commercial banks
Regulator of
Payment and
settlement system
Forex reserves
Institution of
customer service
committees
Ombudsman
scheme
Reserve Bank of India is the regulator of money market,Credit market and Forex
Markets
RBI adopts CAMELS rating for rating the performance of Banks
RBI as per the powers derived from B.R.Act issues guidelines to banks in respect
of certain key areas of operations. Like IRAC nors , CAR etc.
Payment systems like EFT, RTGS are effected through RBI
RBI controls the forex reserves as per the powers drawn from FEMA
Committees like Talwar committee, FGoiporia committee are instituted for
framing guidelines for customer service
Ombudsman scheme is instituted to redress the grievances of customers against
the banks