It Is The Central Bank of India Established in "1 April

INTRODUCTION
 It is the Central Bank of India Established in “1 April

1935” under the “RESERVE BANK OF INDIA ACT”.
Its head quarter is in Mumbai (Maharashtra). Its

present governor is “Duvvuri Subbarao”.
It has “22 Regional Offices”, most of them in State

capitals.
Website: http://www.rbi.org.in
BRIEF HISTORY
 It was set up on the recommendations of the

“Hilton Young Commission”.
It was started as Share-Holders Bank with a paid

up capital of 5 crores.
 Initially it was located in Kolkata.
It moved to Mumbai in 1937.
Initially it was Privately Owned.

Since Nationalization in 1949, the Reserve Bank is fully
owned by the Government of India.
Its First governor was “Sir Osborne A. Smith” (April 1,

1935 to June 30, 1937).
The first Indian Governor was “Sir Chintaman

D.Deshmukh” (August 11, 1943 to June 30, 1949) On
June 27, 2006,
The Union Government of India reconstituted the

Central Board of Directors of the Reserve Bank of India
(RBI) with 13 members, including Azim Premji & Kumar
Mangalam Birla.
GOVERNORS
 “Sir Osborne A. Smith” (April 1, 1935 to June 30,

1937).
“Sir Chintaman D. Deshmukh” (August 11, 1943 to

June 30, 1949).
 “Dr. Y. V. Reddy” (September 6, 2003 to September

5, 2008).
“Dr. D. Subbarao” (September 5, 2008 onwards).

PREAMBLE
The Preamble of the Reserve Bank of India

describes the basic functions of the Reserve Bank
as :-
“…To regulate the issue of Bank Notes and

keeping of reserves with a view to securing
monetary stability in India and generally to
operate the currency and credit system of the
country to its advantage."
FUNCTIONS OF RBI
Formulate monetary policy
 Maintain price stability and ensuring adequate flow

of credit in the economy.
It formulates implements and monitors the monetary

policy.
Instruments: qualitative & quantitative.

Quantitative Measures
Quantitative Measures “BANK RATE” also called

“Discount Rate”.
It also includes “Repo Rate”.
“Open Market Operations” buying and selling of
government securities.
“Variable Reserve Ratio” it includes C.R.R and
S.L.R
Qualitative Measures
Qualitative measures Margin Requirements

Moral Suasion Rationing of Credit.
BANK RATE
 It’s the interest rate that is charged by a country’s
central or federal bank on loans and advances to
control money supply in the economy and the banking
sector.
This is typically done on a quarterly basis to control
inflation and stabilize the country’s exchange rates.
A fluctuation in bank rates Triggers a Ripple-Effect as
it impacts every sphere of a country’s economy.
For instance, the prices in stock markets tend to
react to interest rate changes.
A change in bank rates affects customers as it
influences Prime Interest Rates for personal loans.
REPO RATE
Whenever the banks have any shortage of funds

they can borrow it from the central bank. Repo rate is
the rate at which our banks borrow currency from the
central bank.
 A reduction in the repo rate will help banks to get
Money at a cheaper rate.
When the repo rate increases borrowing from the
central bank becomes more expensive.
It is more applicable when there is a liquidity crunch
in the market.
In order to increse the liquidity in the market, the
central bank does it.
REVERSE REPO RATE
 It’s the rate at which the banks park surplus funds

with reserve bank.
While the Repo rate is the rate at which the banks

borrow from the central bank.
It is mostly done , when there is surplus liquidity in the

market by the central bank.
Regulate & Supervise the Financial System
 To Maintain Public confidence in the system, protect

depositor’s interest & provide cost effective banking
services to the public.
Prescribes broad parameters of banking operations
within which the country's banking and financial system
functions.
The Reserve Bank of India performs this function
under the guidance of the Board for Financial
Supervision (BFS).
 Lender of last resort.
Manager of Foreign Exchange
To facilitate external trade and payment and promote

orderly development and maintenance of foreign
exchange market in India.
It acts as a custodian and Manages the Foreign

Exchange Management Act,(FEMA) 1999.
 RBI buys and sells foreign currency to maintain the

exchange rate of Indian Rupee v/s foreign currencies
like the US Dollar, Euro, Pound and Japanese yen.
Dollar Deposits - LIBOR
Issue of Currency
 To ensure adequate quantity of supplies of currency
notes and coins of good quality.
Issues new currency and destroys currency and coins not
fit for circulation.
It has to keep in forms of gold and foreign securities as
per statutory rules against notes & coins issued.
Developmental Role
 To develop the quality of banking system in India.
Performs a wide range of promotional functions to
support national objectives.
To establish financial institutions of national importance,
for e.g: NABARD,IDBI etc.
Subsidiaries
 National Housing Bank (NHB), Deposit Insurance and

Credit Guarantee Corporation of India (DICGC),
Bharatiya Reserve Bank Note Mudran Private Limited
(BRBNMPL).
Major Stakes: National Bank for Agriculture and Rural

Development (NABARD).
The Reserve Bank of India has recently divested its

stake in State Bank of India to the Government of India.
R.B.I had also set up some training institutions.
Related Functions
 Banker to the Government: Performs all banking

function for the central and the state governments and
also acts as their banker.
Banker to banks: maintains banking accounts of all
scheduled banks.
RBI also regulates the opening /installation of ATM
Fresh currency notes for ATMs are supplied by RBI.
RBI regulates the opening of branches by banks.
It ensures that all the N.B.F.S follow the Know Your
Customer guidelines.
The Reserve Bank of India also regulates the trade of
gold. Currently 17 Indian banks are involved in the
trade of gold in India.
RBI has invited applications from more banks for

direct import of gold to curb illegal trade in gold and
increase competition in the market.
Collection and publication of data.
It issues guidelines and directives for the commercial

banks.
Role of RBI in Economic Development
 Development of banking system,
 Development of financial institutions,
Development of backward areas,
 Economic stability,
 Economic growth,
 Proper interest rate structure,

Narasimham Committee (1991)
High Level Committee “Mr. M.NarasimhaN”

(Chairman) Submitted Report in Nov. 1991
Basic Approach: Greater market orientation would

strengthen the financial system & thus improve its
efficiency. The solvency, health & efficiency of the
institutions should be central to effective financial
reforms.
 On Directed Investments-(SLR & CRR) On Directed
Credit Programes On the Structure of Interest Rates On
Structural Reorganization of the Banking Structure
CRR (Cash Reserve Ratio)
The amount of money each bank has to maintain as

deposits with the central bank.
SLR ( Statutory Liquidity Ratio)
The amount of money each bank has to maintain as

liquid cash to meet its daily cash requirements.

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INTRODUCTION

 It is the Central Bank of India Established in “1 April

Its head quarter is in Mumbai (Maharashtra). Its

It has “22 Regional Offices”, most of them in State

 It was set up on the recommendations of the

It was started as Share-Holders Bank with a paid

 Initially it was located in Kolkata.

It moved to Mumbai in 1937.

Initially it was Privately Owned.

Its First governor was “Sir Osborne A. Smith” (April 1,

The first Indian Governor was “Sir Chintaman

The Union Government of India reconstituted the

 “Sir Osborne A. Smith” (April 1, 1935 to June 30,

“Sir Chintaman D. Deshmukh” (August 11, 1943 to

 “Dr. Y. V. Reddy” (September 6, 2003 to September

“Dr. D. Subbarao” (September 5, 2008 onwards).

The Preamble of the Reserve Bank of India

“…To regulate the issue of Bank Notes and

 Maintain price stability and ensuring adequate flow

It formulates implements and monitors the monetary

Instruments: qualitative & quantitative.

Quantitative Measures “BANK RATE” also called

Qualitative measures Margin Requirements

Whenever the banks have any shortage of funds

 It’s the rate at which the banks park surplus funds

While the Repo rate is the rate at which the banks

It is mostly done , when there is surplus liquidity in the

 To Maintain Public confidence in the system, protect

To facilitate external trade and payment and promote

It acts as a custodian and Manages the Foreign

 RBI buys and sells foreign currency to maintain the

 National Housing Bank (NHB), Deposit Insurance and

Major Stakes: National Bank for Agriculture and Rural

The Reserve Bank of India has recently divested its

 Banker to the Government: Performs all banking

RBI has invited applications from more banks for

Collection and publication of data.

It issues guidelines and directives for the commercial

 Development of banking system,

 Development of financial institutions,

Development of backward areas,

 Proper interest rate structure,

High Level Committee “Mr. M.NarasimhaN”

Basic Approach: Greater market orientation would

The amount of money each bank has to maintain as

SLR ( Statutory Liquidity Ratio)

The amount of money each bank has to maintain as

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