A brief presentation on RBI and its functions, as well as its role in the Indian Banking Sector

1. RBI-Its Role in
the Banking
Services
By Akarsh, Saket, Poorna & Leroy

2. Contents
Introduction
Indian Banking Sector
RBI’s Functions
RBI’s role in Banking
Conclusion

3. Introduction
• The Reserve Bank of India is India's central banking institution, which
controls the monetary policy of the Indian rupee.
• It commenced its operations on 1 April 1935 during the British Rule in
accordance with the provisions of the RBI Act, 1934.
• RBI was nationalised on 1 January 1949.
• RBI has four zonal offices at Chennai, Delhi, Kolkata and Mumbai.

4. Indian Banking Sector
• Originated in the last decades of the 18th century.
• Among the first banks were the Bank Of Hindustan, which was
established in 1770 and liquidated in 1829-32
• The largest bank, and the oldest still in existence, is the SBI
• In 1969 the Indian government nationalised 14 major private banks. In
1980, 6 more private banks were nationalised
• Generally Indian banking is fairly mature in terms of supply, product
range and reach-even though reach in rural India and to the poor still
remains a challenge.

5. Structure RBI
Commercial
Banks
Public Sector
Banks
Private
Sector Banks
Indian Banks
Foreign
Banks
Regional
Rural Banks
Co-operative

6. Functions
• Monetary Authority
• Issuer of Currency
• Banker and Debt Manager to Government
• Banker's bank and supervisor
• Regulator of the Banking System
• Regulator and Supervisor of the Payment and Settlement Systems
• Developmental Role

7. "We are neither hawks nor doves. We are actually owls."

8. Banker’s Bank & Supervisor
• The RBI holds a part of the cash reserves of banks,
• Lends them funds for short periods, and
• Provides them with centralised clearing and cheap and quick remittance
facilities
• It provides the following functions:
• Payment and settlements of inter-bank obligations and fund transfer between
banks.
• Deposit insurance service to the banks
• Cash reserve ratio (CRR)
• Acting as a lender of last resort

9. Regulator of the Banking System
• The bank’s regulatory functions relating to banks like
• Covering their establishment (ie licensing),
• Branch expansion,
• Liquidity of their assets,
• Management and methods of working,
• Amalgamation, reconstruction and liquidation.
• The control by the bank is exercised through periodic inspection of banks and follow-up action and by calling for
returns and other information from them.
• Providing the regulation and supervision works like
• Capital requirements,
• Provisioning,
• Onsite supervision,
• Liquidity norms,
• Asset quality settings,
• Income recognition norms

10. Instruments Used to Control Banks
• Cash Reserve Ratio (CRR)
• Statutory Liquidity Ratio (SLR)
• Repo Rate
• Reverse Repo Rate
• Open Market Operations
• Marginal Cost of Funds Lending Rate (MCLR)

11. Cash Reserve Ratio & Statutory Liquidity Ratio
• Every commercial bank has to keep certain minimum cash reserves with the RBI.
• RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate
or ceiling rate.
• Apart from the CRR, banks are required to maintain liquid assets in the form of gold,
cash and approved securities
• Higher liquidity ratio forces commercial banks to maintain a larger proportion of their
resources in liquid form and thus reduces their capacity to grant loans and advances
• Can increase or decrease the reserve requirement depending on whether it wants to
effect a decrease or an increase in the money supply.

12. Open Market Operations & MCLR
• refers to the buying and selling of government securities in the open market in
order to expand or contract the amount of money in the banking system
• Purchases inject money into the banking system and stimulate growth, while
sales of securities do the opposite and contract the economy.
• The incremental cost of borrowing more money to fund additional asset
purchases or investments.
• Marginal cost funds is the cost of funds one incurred at the boundary. That is
the cost of funds one encountered the last fund borrowed.
• MCLR was brought in to attach the effects of repo Rate to the base rate of
banks.

13. Repo & Reserve Repo Rate
• Repo rate is the rate at which the RBI lends money to commercial banks
in the event of any shortfall of funds.
• Repo rate is used by monetary authorities to control inflation.
• Reverse repo rate is the rate at which RBI borrows money from
commercial banks within the country.
• An increase in the reverse repo rate will decrease the money supply and
vice-versa

14. Conclusion
Thank You