RESERVE BANK OF INDIA

[amitjangid]

RESERVE BANK OF INDIA:


 CONSTITUTION OF RBI
 FUNCTIONS OF RBI
 MONETARY POLICY OF RBI
 WORKING OF INDIAN MONETARY
SYSTEM

RBI HISTORY:

• INAGURATED IN 1935 WITH A SHARE CAPITAL OF RS. 5 CR.
• THE GOVERNMENT OF INDIA HELD SHARES OF NOMINAL VALUE OF RS. 2,22,000.
• RBI WAS NATIONALISED IN 1949.

CONSTITUTION OF RBI:

CENTRAL BOARD OF DIRECTORS OF 20 MEMBERS
• GOVERNOR & 4 DY. GOVERNORS.
• 1 GOVERNMENT OFFICIAL FROM MINISTRY OF FINANCE.
• 10 DIRECTORS BY GOVT. OF INDIA
• 4 DIRECTORS BY CENTRAL GOVT. (represent Local Board)


FUNCTIONS OF THE RESERVE BANK OF INDIA

 GENERAL FUNCTIONS:
 BANK OF ISSUE.
 BANKER TO GOVERNMENT.
 BANKER’S BANK.
 CONTROLLER OF CREDIT.
 CUSTODIAN OF FOREIGN EXCHANGE RESERVES.

 SUPERVISORY FUNCTIONS
 PROMOTIONAL FUNCTIONS


BANK OF ISSUE:

• SOLE RIGHT TO ISSUE BANK NOTES OF ALL DENOMINATIONS.
• SEPARATE ISSUE DEPARTMENT FOR ISSUE OF CURRENCY NOTES.
• ORIGINAL ASSETS:
 2/5TH OF GOLD COINS, GOLD BULLION OR STERLING SECURITIES FOR AMOUNT OF GOLD NOT LESS THAN RS. 40 CR.
 3/5TH HELD IN RUPEE COINS, GOI RUPEE SECURITIES, PROMISSIONARY NOTES PAYABLE IN INDIA.
• MODIFIED PROVISIONS SINCE 1957 (POST-WAR PERIOD)

 MAINTAIN GOLD & FOREIGN EXCHANGE RESERVES OF RS. 200 CR, OF WHICH RS. 115 CR. SHOULD BE IN GOLD.

• THIS SYSTEM IS CALLED AS “MINIMUM RESERVE SYSTEM”.


BANKER TO GOVERNMENT:

• ACT AS GOVERNMENT BANKER, AGENT AND ADVISER.
• OBLIGATION TO TRANSACT GOVT. BUSINESS i.e.
RECEIVE & MAKE PAYMENTS ON BEHALF OF GOVT.
• HELPS GOVT. TO FLOAT NEW LOANS & TO MANAGE PUBLIC DEBT.
• ACTS AS ADVISER TO THE GOVT. ON ALL MONETARY &
BANKING MATTERS.

BANKER’S BANK:


• EVERY SCHEDULED BANK WAS REQUIRED TO MAINTAIN A CASH BALANCE EQUIVALENT TO 5% OF ITS DEMAND LIABILITES & 2% OF ITS TIME LIABILITES WITH RBI.
• AT PRESENT BANKS KEEP CASH RESERVES EQUAL TO 3%OF THEIR AGGREGATE DEPOSIT LIABILITIES.
• SCHEDULED BANKS CAN BORROW OR GET FINANCIAL ACCOMODATION IN TIMES OF NEED.
• SINCE COMMERCIAL BANKS ALWAYS EXPECT RBI TO COME TO THEIR HELP IN TIME OF CRISIS, RBI ALSO BECOMES “LENDER OF THE LAST RESORT”


CONTROLLER OF CREDIT:

• RBI HOLDS THE CASH RESERVES OF ALL THE SCHEDULED BANKS.
• IT CONTROLS THE CREDIT OPERATIONS OF BANKS THRO’ QUANTITATIVE & QUALITATIVE CONTROLS.
• IT CONTROLS THE BANKING SYSTEM THRO’ THE SYSTEM OF LICENSING, INSPECTION AND CALLING FOR INFORMATION.
• IT ACTS AS THE LENDER OF THE LAST RESORT BY PROVIDING REDISCOUNT FACILITIES TO SCHEDULED BANKS.


CUSTODIAN OF FOREIGN EXCHANGE RESERVES:

 MAINTAINS THE OFFICIAL RATE OF EXCHANGE.
 ACC. TO RBI ACT OF 1934, BANK WAS REQUIRED TO BUY AND SELL AT FIXED RATES(AMOUNT NOT > 10,000)
 AFTER BECOMING A MEMBER OF THE I.M.F i.e. “INTERNATIONAL MONETARY FUND” IN 1946, RBI MAINTAINS FIX EXCHANGE RATE WITH ALL OTHER MEMBER COUNTRIES OF THE I.M.F.
 RBI ACTS AS THE CUSTODIAN OF INDIA’S RESERVE OF INTERNATIONAL CURRENCIES.


SUPERVISORY FUNCTIONS:

• RBI HAS CERAIN NON-MONETARY FUNCTIONS
 SUPERVISION OF BANKS
 PROMOTION OF SOUND BANKING IN INDIA
• RBI IS AUTHORISED TO CARRY OUT PERIODICAL
INSPECTION OF BANKS.

• NATIONALISATION OF 14 MAJOR INDIAN SCHEDULED
BANKS IN JULY 1969 IMPOSED NEW RESPONSIBILITIES
ON RBI FOR DIRECTING THE GROWTH OF BANKING
AND CREDIT POLICIES TOWARDS RAPID ECONOMIC
GROWTH.


PROMOTIONAL FUNCTIONS:

• PROMOTE BANKING HABIT.
• EXTEND BANKING FACILITIES TO RURAL & SEMI-
URBAN AREAS.
• ESTABLISH & PROMOTE NEW SPECIALISED
FINANCING AGENCIES.
• ACCORDINGLY RBI HAS SET UP :
 DEPOSIT INSURANCE CORPORATION (1962)
 UNIT TRUST OF INDIA (1964)
 INDUSTRIAL DEV. BANK OF INDIA (1964)
 AGRICULTURAL REFINANCE CORPORATION OF
INDIA (1963)
 INDUSTRIAL RECONSTRUCTION CORPORATION OF
INDIA (1972)
• THE BANK HAS DEVELOPED CO-OPERATIVE CREDIT
MOVEMENT TO:
 ENCOURAGE SAVING
 ELIMINATE MONEY-LENDERS FROM VILLAGE
• RBI WITH HELP OF ARDC PROVIDES LONG-TERM FINANCE TO FARMERS.

[trishmody]

thank u so much..
do u have any case studies on the RBI ACT

[yogin]

India's surging Forex Reserves
Boon or Bane


Article by - Abdul Khader , Faculty Associate and
Sanjib Dutta , Faculty Member ,
ICMR Case Studies and Management Resources.

Is the foreign exchange reserves growth of India, a factor to worry about?


India's Foreign exchange reserves touched $106 billion in February 2004. Millions more are pouring in every day. The continuous surge in foreign exchange reserves is very encouraging keeping in mind the state of affairs in the early 1990s when the country was on the verge of defaulting on its foreign debt.

Having said that we also need to understand that in the present scenario effective utilization of the reserves is crucial. There was a sea change in the approach to foreign reserves management with the acceptance of the recommendations made by the Rangarajan Committee on Balance of Payments. The Committee emphasized on the maintenance of the target level of reserves and also emphasized that attention should be given to the payment obligations apart from the level of imports. The Committee was of the opinion that the targets of foreign exchange should be fixed, in a manner by which it should be able to meet the import requirements for three months. .


The Committee recommended various factors that need to be addressed while determining the desirable level of reserves. The committee was of the opinion that a positive image regarding the country's capacity to honor its obligations needs to be built up in the international financial community. The Committee also recommended that a foreign currency reserve should be maintained to address any speculative tendencies by the players in the foreign exchange market. At the same time, the cost of carrying the liquidity should be minimal.
The importance of managing Forex Reserves

In the recent past the focus on management of foreign exchange reserves has increased. There are various reasons for this. Emergence of Euro as an alternate currency to dollar; change in the exchange rate regimes; change in perception on adequacy of reserves and its role in managing crisis; and operational use of "reserve targets" while calculating financing gaps by IMF. Apart from these there are various other reasons like increase in transparency and accountability at various levels. Moreover, the IMF guidelines have increased focus on foreign exchange reserves management.

Foreign exchange reserves are required to meet a defined set of objectives of a country. Central bank of a country acts as the reserve management entity. As the chief monetary authority of the country, it is central bank's responsibility to ensure a general macroeconomic financial stability. Since, the central bank also happens to be the custodian of the foreign exchange reserves, it needs to maintain adequate liquidity, safety and yield on deployment of reserves.

A survey done by IMF in 2000 reveals distinct characteristics in the foreign exchange reserves management of various countries. It says that many countries maintain reserves to support monetary policy. The primary objective of the countries, while maintaining the reserves is to cope up with the short-term fluctuations in exchange markets. Many countries use foreign exchange reserves for stability and integrity of the monetary and financial system as well.
The Indian Context

In the Indian context, the RBI Act and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves. RBI acts as the chief monetary authority and the custodian of foreign exchange assets. RBI accumulates foreign currency reserves by purchasing from authorized dealers in the open market operations. Another source of Foreign exchange for RBI is deployment of foreign exchange reserves in appropriate instruments of select currencies. The type of instruments in which RBI can invest is stipulated in the RBI Act. The aid received by the government also becomes a part of the reserves.

The outflow of funds results from the sale of foreign currency to the authorized dealers through open market operations. The resultant effect of the sale and purchase of foreign currency determines the level of foreign exchange reserves in a country.
The Surge in the Forex Reserves

The Asian crisis tells us how countries suffer due to ill management of the foreign exchange reserves. Many countries foresaw the vulnerability to the external shocks and accumulated heavy foreign exchange reserves. Countries want to keep their exports competitive. Hence, they prefer to depreciate their currencies against dollars. In recent days, there has been a continuous appreciation of rupee vis-a-vis dollar. To avoid the appreciation of rupee, RBI has been continuously interfering in the money market. RBI is buying dollars from the market. The dollars that are being bought add to the foreign exchange kitty.

Unlike, in the past, the NRI community is more dispersed now, not just confining to the Gulf. Due to software boom, Indians are heading towards new destinations. NRIs are doing well there and ploughing back their savings to India. Moreover, foreign institutional investors are also making huge investments into Indian stocks.

The emergence of India as an offshore outsourcing hub has created new opportunities. There are huge dollar earnings for India. Further, India is also proving to be a worthy manufacturing hub for many companies. All these factors played a positive role in building up of huge foreign exchange reserves.
Costs and Benefits

The costs and benefits of holding huge reserves are assessed constantly. Holding sufficient reserves prevent a country from external shocks. Though excess foreign exchange reserves prevent a country from external shocks, it involves an opportunity cost as well. The resources that have been used to purchase reserves could have been used to increase the domestic productivity.

Thus, the marginal productivity of domestic capital is the opportunity cost of holding reserves. Reserves management intends to minimize the opportunity costs against the benefits that results by holding the reserves. Putting a stop to accumulation of reserves can result in sharp appreciation of the rupee. A section of the exporters are worried about the appreciation of the rupee. They fear that India may lose its export competitiveness. But, according to the then RBI Governer, Bimal Jalan, export competitiveness of an exchange rate should be seen in parlance with trade-weighted exchange rate. It should not be just compared to US dollar alone. The appreciation of rupee is less compared to dollar. Hence, exporters should try to enter those markets, where the Indian exports are still competitive.


The foreign exchange reserves can be used to acquire new technologies. This would scale up the productivity of the industry. The government can even consider raising the ceiling on the amount that can be used by Indian companies to takeover or acquire a company across the world. This would help in creation and expansion of Indian multinational companies.

According to many analysts, though the growth of foreign exchange reserves is good, but the composition of the reserves is a matter of concern. In the first half of 2002, the inflows have grown by $11.5 and in the second half the total reserves increased by $12.3 billion. RBI was candid in admitting that these reserves were a result of current account transactions. These transactions were a result of the software exports and remittances from abroad. These transactions were considered to be better than portfolio investment and NRI deposits because in the case of any eventuality, the outflow of funds in the case of portfolio investment and NRI deposit would be faster.

The growth pattern of foreign exchange reserves in 2003 has shown a different composition. The first six months of 2003 witnessed heavy inflows from NRIs. Around 42 percent of the total inflows during this period was from NRIs. The growth pattern continued in the period between April and June 2003. Of the $6.6 billion received during that period, $3.63 billion was because of NRI deposits.

The appropriate level

It is difficult to quantify the appropriate level of reserves of foreign exchange for a country. Economists have come out with some models or methods by which the reserve adequacy can be assessed. There are certain parameters which help in assessing the adequacy of foreign exchange reserves. The usual parameters are adequacy of foreign exchange reserves to take care of the future imports and whether reserves are enough to meet sudden withdrawals.

Many economists and analysts feel that the foreign exchange reserves of India are in surplus. Though RBI keeps justifying the accumulation of reserves saying that this can be used as a shield to protect the economy from capital flight and currency crises, but some economists do not buy this theory
.
In the past, it has been seen that countries sitting comfortably on high foreign exchange reserves, faced worst economic crisis. Thus one can say that no levels of foreign exchange reserves are enough to protect an economy from speculative capital attack.

The high reserves can be used to smoothen the destabilizing movements. This can also be used as a shield to counter the currency fluctuations. Though, it is difficult for RBI to control the foreign exchange reserves accumulations, it can use these reserves for some productive purposes. Corporates can aggressively restructure their expensive foreign debt. Government can also use them for repaying the high cost debts from various institutions.

[rahul_parab2006]

more on rbi.............

RESERVE BANK OF INDIA

[ravimanglani]

pl help in rbi my rbi project with whatever info you have

[yogin]

Originally Posted by ravimanglani

pl help in rbi my rbi project with whatever info you have

wht kind of info u r looking for ravi, specify it so tht ppl here can help u more in a better way............................................... ...........tc

[ravimanglani]

basically i want all the info about rbi i.e.
establishment
preamble
history
governors
functions
monetary policy
case studies
issue of currency
diff projectects where rbi is financing
pls help me in this i will be very grateful to all of you

[rahul_parab2006]

Originally Posted by ravimanglani

basically i want all the info about rbi i.e.
establishment
preamble
history
governors
functions
monetary policy
case studies
issue of currency
diff projectects where rbi is financing
pls help me in this i will be very grateful to all of you

u can chk out this prjct...........

RESERVE BANK OF INDIA

also go to RBI site............

Reserve Bank of India - India's Central Bank

[rajiv81180]

can u pls help me for role of rbi in indian banking systems project