Tuesday, 1 April 2014

RESERVE BANK OF INDIA




The Reserve Bank of India is the apex bank or the central bank of the country. RBI is the bankers bank and the lender of the last resort. The Head Office of RBI is in Mumbai.

RBI was established on April 1, 1935 on the recommendations of the Hilton Young Commission as per the RBI act 1934 as a private shareholders bank. It was nationalized on January 1, 1949.

RBI, Board of Directors constitute 21 members, which includes the Governor and 4 Deputy Governors. Governor is the executive head of the Bank. It has Central Board of Directors supplemented by 4 local Boards at Delhi, Kolkata, Chennai and Mumbai for the four regional areas: Northern, Eastern, Southern, and Western respectively.

1st Governor- Osborn Smith.
1st Indian Governor- C.D.Deshmukh.

Governor of RBI

Raghuram Govind Rajan.

Deputy Governor's of RBI

  1. Dr. K.C. Chakrabarty (resigns, earlier departure on 25th April 2014.)
  2. Shri H.R. Khan.
  3. Dr. Urjit R. Patel
  4. Anand Sinha.

RBI ACCOUNT HOLDERS.

  • Central Government.
  • State Government.
  • All Scheduled Commercial Banks.
  • Former RBI Governors.

 RBI AS LENDER OF LAST RESORT.

As the lender of the last resort RBI provides financial accommodation to the commercial banks in times of financial crisis.

Accommodation will be available when:
  1. The commercial bank is not able to rise funds from other sources.
  2. General condition of the bank is good.

FUNCTIONS OF RBI.

  1. Issuer of Currency.
  2. Banker to the Government.
  3. Banker's Bank.
  4. Controller of Credit.
  5. Custodian of Forex Reserves.
  6. Bank of Settlement and clearences.
  7.  Lender of last resort.
  8. Information and Research Functions.

MONETARY INSTRUMENTS OF RBI TO CONTROL CREDIT AND TO BRING ECONOMIC STABILITY:

DIRECT INSTRUMENTS.

1. Cash Reserve Ratio (CRR).

            The share of net demand and time liabilities that banks must maintain as cash balance with the RBI.

2. Statutory Liquidity Ratio (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.

INDIRECT INSTRUMENTS.

1. Bank Rate.

           Bank Rate is the rate at which Central Bank lends money to Commercial Banks. Often these loans are very short in duration.

           Any upward revision in Bank Rate by Central Bank is an indication that banks should also increase deposit rates as well as Base Rate/BPLR.

2. Repo Rate (Tool to inject liquidity into the Banking System).

           Repo is "Repurchase Agreement". An Agreement to sell a security at a specified price and to buy it back later at another specified price.

           Repo Rate is the rate at which commercial banks borrows rupee from RBI. Repo is a secured loan as it is backed with securities.

3. Reverse Repo Rate (Tool to absorb liquidity from the Banking System).

           Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the RBI.

4. Marginal Standing Facility (MSF).

           Under MSF scheduled commercial banks can borrow overnight at their discretion up to 2% of their net demand and time liabilities(NDTL) at 100 basis points above the Repo Rate to provide a safety valve against unanticipated liquidity shocks.

5. Liquidity Adjustment Facility (LAF).

           LAF consists of daily infusion or absorption of liquidity on a repurchase basis, through repo(liquidity injection) an reverse repo(liquidity absorption) auction operations, using government securities as collateral.

6. Open Market Operations (OMO).

          OMO's are market operations conducted by the RBI by way of sale/purchase of government securities to/from the market with an objective to adjust the rupee liquidity conditions in the market.

          When the RBI feels there is excess liquidity in the market, it resorts to sale of securities thereby sucking out the rupee liquidity.

          Similarly when the liquidity conditions are tight, the RBI will buy securities from the market, thereby releasing liquidity into the market.

7. Market Stabilisation Scheme (MSS).

          In 2004, to mop up excess liquidity, the Central Bank used its huge stock of government securities. But over a period this stock of government securities held with RBI has come down sharply.

          It is in such a context that MSS was announced in 2004 to take care of the shortage of Government Securities.

          Under MSS, liquidity of a more enduring nature arising from large capital flows is absorbed through sale of short dated Government Securities and Treasury Bills.

          The amount raised under the MSS will be held in a separate identifiable cash account titled the MSS Account to be maintained and operated by the RBI. The payment of interest and discount will not be made from the MSS Account. The Government in consultation with RBI, will fix an annual aggregate ceiling for these instruments.

ISSUING CURRENCY

There are four printing presses actively printing notes in India:

By Security Printing and Minting Corporation of India(SPMCIL)- wholly owned subsidiary of Government of India.

1. Dewas, Madhya Pradesh.
2. Nasik, Maharashtra.

By Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL)- wholly owned subsidiary of RBI.

3. Mysore, Karnataka.
4. Salboni, West Bengal.

There are four Coin Mints in India:

1. Mumbai, Maharashtra.
2. Noida, Uttarpradesh.
3. Kolkata, West Bengal.
4. Hyderabad,

Coins are minted by the Government of India. RBI is the agent of the Government for distribution, issue and handling of coins.

Wholly owned Subsidiary of RBI:

  1. National Housing Bank.
  2. Deposit Insurance and Credit Guarantee Corporation of India (DICGC)
  3. Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL)

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