Working and functions_of_rbi[1]

RESERVE BANK OF INDIAwww.rbi.org.inS-18 Deepak.K.AwariS-34 Kumar Rajesh RanjanS-65 Uttam ChandS-70 Vinay Singh

FUNCTIONS AND STRUCTURE OF RESERVE BANK OF INDIAReserve Bank of India was established on 1st April, 1935 under Reserve Bank of India Act, 1934It was established as a shareholders Bank with paid up capital of Rs. 5 Crores (5 lakh shares of Rs. 100/- each)The ownership of the Bank was transferred to the Central Govt. from 1st January, 1949.

Preamble to RBI Act,1934“--------to regulate the issue of Bank notes and the 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;”

This function imposes on the Bank the responsibility of :Operating monetary policy for maintaining price stability and ensuring adequate financial resources for developmental purposes;Promotion of an efficient financial system; andMeeting the currency requirement of the public

MAIN FUNCTIONS OF RBIThe main functions of the RBI are broadly the same as those of other Central Banks world overIt has taken over the central banking functions carried out by the erstwhile Imperial Bank like Banker to the Government and Bankers’ BankIt has also taken over the functions of note issue and management of foreign exchange from the Central Government

MAIN FUNCTIONS OF RBI...Note issuing authority/ Currency authority, Banker to the Banks,Banker to the Government, Management of Foreign Exchange,Monetary Management- to promote the growth of economy and maintaining price stability,Control and supervision over banking system to channelise the bank credit for the productive purpose and safe guard depositors’ interest

RESERVE BANK AS CURRENCY AUTHORITYSole authority for issue of currency in IndiaOne rupee coin/ notes and other coins are issued by RBI on behalf of the GovernmentRBI’s responsibility is to put currency into circulation, exchange it or withdraw it.All the transactions relating to the issue of currency notes are carried out by the Issue Department which is separated from other departments for accounting purposes

RESERVE BANK AS CURRENCY AUTHORITY...Assets and Liability of Issue DepartmentAssets - Gold coin and bullion, foreign securities, Rupee Coin, Government of India Rupee Securities of any maturity and bills of exchange and promissory notes payable in IndiaLiability - The total liability of the issue department is the total notes issued i.e. Notes in circulation and Notes held in the Banking Department

BANKER TO THE BANKSMaintaining the balances of scheduled banks and deposits of non-scheduled and cooperative banksRediscounting of eligible bills for granting loans and advances to Scheduled Commercial Banks, State Cooperative Banks, RRBs and financial institutionsThe above functions are carried out by the Deposit Accounts Departments at various offices

BANKER TO THE GOVERNMENTReserve Bank is the banker to the Central Government statutorily and to the State Governments by virtue of agreementsRBI provides a full range of banking services to Central/State Government such as acceptance of money on deposit, withdrawal of funds by cheques, receipt and collection of payments to Government and transfer of funds

BANKER TO THE GOVERNMENT….A large number of branches of agency banks and treasury agencies also undertake government business on behalf of RBI as the RBI offices are located mainly at state capitalsThe Government Revenue collected through agency banks/ treasury agencies are remitted to the RBI in due course.

BANKER TO THE GOVERNMENT….Public DebtReserve Bank manages the public debt and issues new loans on behalf of Central and State GovernmentsThe administration of public debt also devolves on the RBI, this may involve issue and retirement of loans, payment of interest, and all matters pertaining to debt certificate and registration of debt holding

MANAGEMENT OF FOREIGN EXCHANGEMaintaining external value of RupeeInadequacy of foreign exchange reserves affect the developmentExchange management becomes necessary to ensure judicious use foreign exchange resources on the basis of prioritiesRecently the foreign exchange restrictions have been almost removed on current accounts and the external value of the rupee is determinedby the market forces, RBI has to intervene occasionally

MONETARY MANAGEMENTTo facilitate the flow of an adequate volume of bank credit to industry, agriculture and trade to meet their genuine need for the overall growth of the economyTo keep inflationary pressures under check and restrain undue credit expansion To ensure that the credit is not diverted for undesirable purposes

MONETARY MANAGEMENT - INSTRUMENTSBank RateReserve RequirementsCash Reserve RatioStatutory Liquidity RatioOpen Market Operations (Sale and Purchase of Government Securities)Interest Rate Policies

DEVELOPMENTAL FUNCTIONSAgriculture and rural developmentIndustrial DevelopmentExport PromotionHousing DevelopmentDevelopment of Government Security marketGrowth of other components of financial market

REGULATION AND SUPERVISION OVER BANKING SYSTEMPrimary responsibility for Regulation,supervision, and development of banking system- it includesLicensing of banks and branch licensing policyCapital, Reserves and Liquid assetsInspection of banksControl over method of operationsControl over managementSupervision of banks in liquidation, etc

Contd.Regulation – to control, govern, provide direction as well as focus to the given system.Supervision – to oversee the performance in terms of prescribed norms, procedures, Legal framework etc.Without supervision all regulatory measures could be useless &Without regulatory measures supervision can not exist.

TYPES OF REGULATIONFormal & InformalFormal: Guidelines Directives Targets Prudential Norms New Acts or Amendments to existing Acts

Contd.Informal: Agreements Memorandum of understanding Code of conduct Corporate Governance Self Regulatory Organisations Internal Control System etc.

Strengthening Supervisory Mechanism1. Banking SupervisionEstablishment of Board for Financial SupervisionComprehensive three-tier supervisory model- On-site inspection, Off-site monitoring and periodical external auditing based on CAMELS model /RBS Extensive use of Information Technology for supervision

Contd.Initiation of measures to introduce International best practices in Banking and complying with the Core principles for effective supervision prescribed by BASELcommittee on Banking Supervision.Issuance of detailed guidelines on Risk Management, Operational risk, market risk, credit risk, and revised draft guidelines on implementation of New Capital adequacy framework, etc.

Contd.-2.Non Bank SupervisionDevelopment Financial Institutions were brought under the regulatory ambit of RBI in 1995Three tier supervisory frame work for monitoring non-bank financial companies introduced against the back drop of RBI (Amendment) Act 1997 and the Khanna Committee(1995) recommendations on 3 criteria: - size of a NBFC,- type of activity performed,&- the acceptance or otherwise of public deposits

ORGANISATION OF THE RBIRBI works under the overall guidance and direction of Central Board of Directors, which comprisesA Governor and not more than 4 Deputy Governors appointed by the Central Government.Four directors appointed by the Central Government, one each from the four local boardsTen directors nominated by the Central Govt.One Government official nominated by Central Government.

ORGANISATION OF THE RBI...Local Boards:For each of the four areas of the countrythere is a Local Board Local Boards consist of 5 members each appointed by the Central Government for 4 years to represent the territorial and economic interests and the interest of cooperatives The Local Boards advises the Central Board on matters referred to them

INTERNAL ORGANISATION AND MANAGEMENTAs the chairman of the Central Board of Directors, the Governor is the Bank’s chief executive authorityThe Governor is assisted by 3-4 Deputy Governors and 6-7 Executive DirectorsThe Bank’s functions are performed by different departments at Central Office at Mumbai and local/branch offices at different parts of the country

CENTRAL OFFICE DEPARTMENTSOn the basis of the main functions performed by the RBI, the departments may be classified as:Currency ManagementGovernment and Banks BusinessExchange Control and External value of RupeeSupervision and ControlDevelopmentalMonetary Policy and Research Internal administration/ housekeeping

CENTRAL OFFICE DEPARTMENTS...Currency ManagementDepartment of Currency Management (DCM)Government and Banks BusinessDepartment of Government and Bank Accounts (DGBA)Internal Debt Management Department (IDMD)FMDExchange Control and External value of RupeeForeign Exchange Department (FED)Department of External Investment and Operations (DEIO)

CENTRAL OFFICE DEPARTMENTS...Supervision and ControlDepartment of Banking Supervision (DBS) Department of Non-Banking Supervision (DNBS)Department of Banking Operations and Development (DBOD)Urban Banks Department (UBD)

CENTRAL OFFICE DEPARTMENTS...DevelopmentalRural Planning and Credit DepartmentMonetary Policy and Research Department of Economic Analysis and PolicyDepartment of Statistical Analysis and Computer ServicesMonetary Policy Department

CENTRAL OFFICE DEPARTMENTS...Internal Administration/ House KeepingSecretary’s DepartmentDepartment of Administration and Personnel ManagementHuman Resources Development DepartmentDepartment of Expenditure and Budgetary ControlDepartment of Information TechnologyPress Relation DivisionPremises DepartmentLegal DepartmentInspection DepartmentTraining Establishments

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Working and functions_of_rbi[1]