1. Presentation
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2. • RBI’s History
• Need for RBI
• Functions of RBI
• Non-Monitory functions of RBI
• Monitory functions of RBI
• Tools of Monitory Policy
– Quantitative tools
– Qualitative tools
• Selective and Direct credit controls
• Current Monitory Policy
• Purchase Power Parity (PPP)
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3. • The central bank of the country--Reserve Bank of India (RBI).
• Established in April 1935 with a share capital of Rs. 5 crores on the basis of the
recommendations of the Hilton Young Commission.
• The share capital was divided into shares of Rs. 100 each fully paid up which
was entirely owned by private shareholders in the beginning.
• The Government held shares of nominal value of Rs. 2,20,000.
• Reserve Bank of India was nationalized in the year 1949
• No of members on central board is 20 (incl. governor and 4 deputy governors)
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4. • The Reserve Bank of India Act, 1934 was
commenced on April 1, 1935.
• The Act, 1934 (II of 1934) provides the statutory
basis of the functioning of the Bank.
The Bank was constituted for the need of
following:
• To regulate the issue of banknotes
• To maintain reserves with a view to securing
monetary stability and
• To operate the credit and currency system of the
country to its advantage.
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5. The Reserve Bank of India Act of 1934 contains all the important functions of a
central bank to the Reserve Bank of India.
•Bank of Issue
Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right
to issue bank notes of all denominations.
•Banker to Government
The second important function of the reserve bank of India is to act as government
banker, agent and adviser. RBI carries out banking operations (e.g. to receive and
make payments, carry cash reserves) for all governments except J&K—acts as
advisor to govt on all monetary and banking matters.
•Bankers' Bank and Lender of the Last Resort
The scheduled banks can borrow from the Reserve Bank of India on the basis of
eligible securities or get financial accommodation in times of need or stringency.
Banks have been asked to keep cash reserves equal to 3 percent of their aggregate
deposit liabilities.
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6. • Controller of Credit
The Reserve Bank of India is the controller of credit i.e. it has the power
to influence the volume of credit created by banks in India. It can do so
through changing the Bank rate or through open market operations.
• Controller of money market
The Reserve Bank of India is armed with many more powers to control
the Indian money market
• Custodian of foreign exchange reserves
Besides maintaining the rate of exchange of the rupee, the Reserve
Bank has to act as the custodian of India's reserve of international
currencies.
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7. 1. Monopoly of currency notes issue
2. Banker to the Government(both the central and state)
3. Agent and advisor to the Government
4. Banker’s Bank
5. Acts as the clearing house of the country
6. Lender of the last resort (B R P)
7. Custodian of the foreign exchange reserves
8. Maintaining the external value of domestic currency
9. Controller of forex and credit (Credit Policy)
10. Ensures the internal value of the currency
11. Publishes the Economic statistical data
12. Fight against economic crisis and ensures stability of
Economy.

8. 1. Promotion of banking habit and expansion of banking systems.
2. Provides refinance for export promotion. (E P C G)
3. Expansion of the facilities for the provision of the agricultural
credit through NABARD.
4. Extension of the facilities for the small scale industries.
5. Helping the Co-operative sectors.
6. Prescribe the minimum statutory requirement. (SLR)
7. Innovating the new banking business transactions.

9. 1. Granting license to Banks.
2. Inspecting and making enquiry or determining position in
respect of matters under various sections of RBI and Banking
regulations.
3. Periodical review of the work of the commercial banks.
4. Giving directives to commercial banks.
5. Control the non-banking finance corporations.
6. Ensuring the health of financial system through on-site and
off-site verification.

10. Role as Supervisor
• RBI enjoys wide powers of supervision and control over commercial and
co-operative banks, relating to
• licensing and establishments,
• branch expansion,
• liquidity of their assets,
• management and methods of working,
• amalgamation,
• reconstruction,
• and liquidation.
• The RBI is authorized to carry out periodical inspections of the banks and
to call for returns and necessary information from them..
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11. Promotional functions
The major function of Reserve Bank is to promote banking habit, extend banking
facilities to rural and semi-urban areas, and establish and promote new specialized
financing agencies.
Accordingly, the Reserve Bank has helped in the setting up of the
• IFCI
• SFC
• Deposit Insurance Corporation in 1962
• Unit Trust of India in 1964,
• Industrial Development Bank of India in 1964
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12. What is monetary policy?
A macroeconomic policy tool used to
influence interest rates, inflation, and credit
availability through changes in the supply of
money available in the economy. In India it is also
called the Reserve Bank of India’s ‘Credit Policy’
as the stress is primarily on directing credit.
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13. CONTROLLED EXPANSION(1951-72)
• Speed up economic development in the country to raise
national income and standard of living.
• To prevent heavy depreciation of the rupee.
• Maintaining the momentum of economic growth. To
consider measures in a calibrated manner to respond to
evolving circumstances with a view to stabilizing
inflationary expectations.
RBI’s ANTI-INFLATIONARY POLICY SINCE 1972
• Economic aims given above were nearly the same but policy
of CONTROLLED EXPANSION was changed to CREDIT
RESTRAINT.
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14. There are two kinds of tools:
Quantitative tools –control the volume of
credit and inflation, indirectly.
Qualitative tools –they control the supply
of money in selective sectors of the economy.
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15. • Bank Rate
Bank Rate is the rate at which RBI allows finance to commercial banks.
Bank Rate is a tool, which RBI uses for short-term purposes. Any revision in
Bank Rate by RBI is a signal to banks to revise deposit rates as well as
Prime Lending Rate.
Role of bank rate is limited in India because
The structure of interest rates is administered by RBI
Commercial banks enjoy specific refinance facilities.
• CRR
All scheduled commercial banks are required to maintain a fortnightly
minimum average daily cash reserve equivalent with RBI .The apex bank is
empowered to vary this ratio between 3 and 15 per cent. RBI uses CRR
either to impound the excess liquidity or to release funds needed for the
economy from time to time.
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16. • SLR
Every bank is required to maintain at the close of business every
day, a minimum proportion of their Net Demand and Time Liabilities
as liquid assets in the form of cash, gold etc, in addition to cash
reserve requirements. The ratio of liquid assets to demand and time
liabilities is known as Statutory Liquidity Ratio (SLR). Present
SLR is 24%.
• Repos and Reverse Repo
RBI is empowered to enter a transaction in which two parties agree to sell
and repurchase the same security. Under such an agreement the seller sells
specified securities with an agreement to repurchase the same at a mutually
decided future date and a price. Similarly, the buyer purchases the securities
with an agreement to resell the same to the seller on an agreed date in future
at a predetermined price. Such a transaction is called a Repo when viewed
from the prospective of the seller of securities (the party acquiring fund) and
Reverse Repo when described from the point of view of the supplier of
funds. Thus, whether a given agreement is termed as Repo or a Reverse
Repo depends on which party initiated the transaction.
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17. • An instrument of monetary policy
• It involves buying and selling of govt. securities by the
RBI to influence the volume of cash reserves with
commercial banks and thus influence their loans and
advances
• To contract the flow of credit ,RBI starts selling govt
securities
• To increase the credit flow RBI starts purchasing the
govt securities.
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18. • The main objective is to check speculation and
rising prices
• The RBI issues directives to banks relating to
the purpose for which advances may or may not be
made
• The margins to be maintained in respect of secured
advances
• The maximum amount of advance to any borrower
• The maximum amt. of guarantee that can be given
on behalf of any firm
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19. • Specifies minimum margins for lending against
specific securities
• Ceiling on amt of credit for certain purposes to stem
the flow of credit to speculative and non productive
sectors
• Charges discriminatory rate of interest on certain
types of advances
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20. Key Figures
• Reverse Repo Rate Hiked by 25 bps, stands at 5%
• Repo Rate Unchanged at 6%
• Bank Rate Unchanged at 6%
• CRR Unchanged at 5%
• Inflation FY06 5-5.5%
• GDP FY06 Target 7%
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21. Key Figures
• Reverse Repo 4%
• Repo Rate 4.25%
• Bank Rate 6%
• CRR Unchanged 5.5%
• Inflation 5.07%
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