Structure and Functions of Rbi

STRUCTURE AND FUNCTIONS OF
RESERVE BANK OF INDIA

INTRODUCTION
It is the Central Bank of

India Established in “1st April
1935” under the “RESERVE
BANK OF INDIA ACT”.
Its head quarter is in

Mumbai (Maharashtra). Its
present governor is “Shaktikanta Das”.
It has “22 Regional Offices”,

most of them in State capitals.
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.
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
 Issue of currency
 Development role
 Banker to government
 Banker to bank
 Role of RBI in inflation control
 Formulate monetary policy
 Manager of foreign reserve
 Clearing house functions
 Regulations of banking system
Issue of Currency:
 RBI has the sole authority to issue currency , notes except coins
and one rupee note which are issued by Ministry of Finance.
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:
Todevelop 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.
Banker to the Government:
 Performs all banking function for the central and the state
governments and also acts as their banker excepting that of
Jammu and Kashmir. It makes loans and advances to the States
and local authorities. It acts as adviser to the Government on all
monetary and banking matters. It manages public debt and is responsible
for issue of new loans. It also sells treasury bills on behalf of central
govt in order to wipe away excess liquidity in the country.
 T-bills are issued when government needs money for a shorter period.
There are the trustworthy securities(GILT-EDGED SECURITIES). It means
when government needs money it goes to public and ask them to
purchase these treasury bills and in return govt give high rate of interest.
(90,182,364 days a treasury bills are issued if it is more than 364 days
then they are called bonds. )
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 20 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 inflation control:
Inflation arises when the demand increases and there is a

shortage of supply. There are two policies in the hands of the RBI.
Monetary Policy: It includes the interest rates. When the bank

increases the interest rates than there is reduction in the
borrowers and people try to save more as the rate of interest has
increased.
Fiscal Policy: It is related to direct taxes and government

spending. When direct taxes increased and government spending
increased than the disposable Income of the people reduces and
hence the demand reduces.
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
1. Direct Action
2. Moral persuasion
3. Legislation
4. Publicity
BANK RATE
 It’s the interest rate that is charged by a country’s central
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 sector of a country’s economy.
 A change in bank rates affects customers as it influences

Prime Interest Rates for personal loans.
 The present bank rate is 9%

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.
 In order to increase the liquidity in the market, the central

bank does it.
 The present repo rate is 8%

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.
 The present reverse repo rate is 7%

Cash Reserve Ratio:
•Cash Reserve Ratio (CRR) is the amount of Cash(liquid cash like
gold)that the banks have to keep with RBI.
•This Ratio is basically to secure solvency of the bank and to drain

out the excessive money from the banks.
•The present CRR rate is 4.75%.

SLR(Statutory liquidity Ratio):
• It 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.
• The present SLR rate is 23%.

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.
Regulation of banking system:
The prime duty of the reserve Bank is to regulate the banking
system of our country in such a way that the people of the
country can trust in the banking Up to perform its duty.
The Reserve Bank has following powers in this regard:
Licensing:
According to the section 22 of the Banking Regulation Act,
every bank has to obtain license from the Reserve Bank. The
Reserve Bank issues such license only to those banks which
fulfill condition of the bank.
Management:
Section 10 of the Banking Regulation Act embowered the Reserve Bank to
change manager or director of any bank if it considers it necessary or
desirable.
Branch Expansion:
Section 23 requires every bank to take prior permission from
Reserve Bank to open new places of business in India.
Power of inspection of Bank:
Under Section 35, the Reserve Bank may inspect any bank and
its books and accounts either at its own initiative or at the
instance of the Central Government.
Power of inspection of Bank:
Under Section 35, the Reserve Bank may inspect any bank and
its books and accounts either at its own initiative or at the
instance of the Central Government.

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STRUCTURE AND FUNCTIONS OF

RESERVE BANK OF INDIA

It is the Central Bank of

Its head quarter is in

It has “22 Regional Offices”,

• It was started as Share-Holders Bank with a paid up capital

• 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

“…To regulate the issue of Bank Notes and keeping of

RBI also regulates the opening /installation of ATM Fresh

RBI regulates the opening of branches by banks.

RBI has invited applications from more banks for direct

Collection and publication of data.

It issues guidelines and directives for the commercial

Inflation arises when the demand increases and there is a

Monetary Policy: It includes the interest rates. When the bank

Fiscal Policy: It is related to direct taxes and government

It formulates implements and monitors the monetary policy.

Instruments: qualitative & quantitative.

 This is typically done on a quarterly basis to control inflation

 A fluctuation in bank rates Triggers a Ripple-Effect as it impacts

 A change in bank rates affects customers as it influences

 The present bank rate is 9%

 A reduction in the repo rate will help banks to get Money at a

 When the repo rate increases borrowing from the central

 In order to increase the liquidity in the market, the central

 The present repo rate is 8%

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

 The present reverse repo rate is 7%

•This Ratio is basically to secure solvency of the bank and to drain

•The present CRR rate is 4.75%.

• The present SLR rate is 23%.

 It acts as a custodian and Manages the Foreign Exchange

 RBI buys and sells foreign currency to maintain the exchange

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