IMPORTANT POINTS ABOUT RESERVE BANK OF INDIA (RBI)

In this post, we have summarized Important points about Reserve Bank of India(RBI).

Reserve Bank of India is – India’s Central Banking Institution, came into existence on 1st April 1935 as a private share holder.

IMPORTANT POINTS ABOUT RESERVE BANK OF INDIA (RBI)

Functions of RBI :

  • Monetary Authority
  • Regulator and supervisor of the financial system
  • Manager of Foreign Exchange
  • Issuer of currency
  • Developmental role(Functions to support national objectives)
  • Banker to Banks
  • Banker to the GovernmentIMPORTANT POINTS ABOUT RESERVE BANK OF INDIA

As a banker to the banks, it performs the following function:
1.Keeps a part of cash reserves of the banks

2.Short term lending

3.Centralized clearing facility

Structure of RBI :

  1. Central Board of Directors
  • One Governor(Dr. Raghuram Rajan)
  • Four Deputy Governors(4 is the maximum)
  • Four Non official Directors(which is nominated by Central Government. Each non-official director represent the local boards in Delhi, Chennai, Kolkata and Mumbai)
  • Ten Non official directors(Nominated by RBI)
  • One representative of Central Government
  1. Committee of Central Boards
  2. Board of Financial Supervision
  3. Board of Payment and Settlement systems
  4. Subcommittees of central board
  5. Local Boards

Important Points:

  • It was nationalised on 1st January 1949.
  • It is head-quartered in Mumbai.
  • It has 19 regional offices.
  • It prints currency in 15 languages.
  • Its predecessor was Imperial Bank of India.
  • It came into existence on recommendation of Hilton Young (Royal) commission as per RBI act 1934.
  • It is the member bank of Asian clearing Union (ACU) and IMF(International Monetary Fund)
  • The Governor of RBI is Raghuram Rajan. There are 4 Deputy Governors, H R Khan, Dr Urjit Patel, R Gandhi and SS Mundra.
  • RBI does not pay interest on government deposits
  • Currency notes are issued by RBI under “Minimum Reserve system 1957”with backing of 200 Cr Reserve(Gold : ₹115Cr + Foreign Securities ₹85 Crore)

The following monetary instruments are used by RBI to control credit and to bring stability in the economy:

  • Bank Rate: Bank Rate, also known as discount rate at which RBI (central bank) lends to commercial banks and other financial institutions. It is usually for longer period.
    In simple words, it is basically borrowing money from someone and then paying interest. This rate is decided by central bank depending upon the demand and supply of money in an economy.
  • Repo rate: It is the rate at which banks takes money from RBI for a short period of time by selling their financial assets to RBI with an agreement to repurchase it in future.
  • Reverse Repo Rate: The rate at which RBI borrows from the commercial bank. RBI uses Reverse repo rate when it feels there is too much money floating in the banking system.

Both Repo and Reserve repo rate are used as policy instruments for day to day liquidity management under the liquidity adjustment facility.

  • Cash reserve Ratio: Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. RBI increases the CRR rate to drain out the excessive cash from the banks.
  • Statutory Liquidity Ratio: SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers.

SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit. SLR is determined as the percentage of total demand and percentage of time liabilities. SLR is used to control inflation and propel growth.

  • Open Market Operations: It involves buying and selling of government securities by RBI to influence the volume of cash reserves with commercial banks.

Current
Bank Rate : 7.75%
Repo Rate : 6.75%
Reverse Repo Rate : 5.75%
Cash Reserve Ratio (CRR) : 4%
Statutory Liquidity Ratio (SLR): 21.50%
Marginal Standing Facility(MSF): 7.75%

 

Last updated on: 4th November,2015