February 18, 2019

Monetary Policy And structure of RBI

Monetary Policy: The Reserve Bank of India issues monetary policy annually to control money supply in the economy and flow of credit by banks to control inflation CRR,Bank rate,SLR,Repo rate,Reverse repo rate,Open market operation and Market stabilization scheme are the tools of  Monetary policy. Monetary policy is the process by which central bank controls (i) supply of money (ii) Availability of money (iii) Rate of interest.  To control inflation, deflation and liquidity in market, the policy is used by RBI is known as Monterey policy.     

Tools of Monetary Policy: (I) Direct  (II) Indirect rule. 

(I) Direct Rule: CRR,SLR and Refinance of facilities. 

(II) Indirect Rule: LAF,Bank Rate, MSF,OMO,MSS and Term Repo .                                                                              
Direct rule
CRR: Full name cash reserve ratio, According to section 42(I) RBI act 1934, all scheduled bank have to keep a certain amount of their NDTL(net demand and time liability) in the form of cash with RBI is known as CRR.  Interest is not taken or given on this amount .    No minimum and maximum limit.   Rate is maintain on daily basis.   Present CRR is 4 percent.
 SLR: Full name Statutory liquidity Ratio, according to section24 ( 2(A) ) Banking Regulation act 1943, all banking companies bank plus NBFCs have to keep certain amount of their NDTL(net demand and time liability) in form of cash, gold and government securities is known as SLR. Interest rate not given , no minimum limit but maximum limit 40 percent.  
Refinance Facility: Sector specific refinance facility, Regional Rural Bank Refinance by NABARD.                                                           
 Indirect Rule-
 LAF: Full name Liquidity adjustment Facility, First implemented in year 2000,  it allows banks to borrow money through repurchase agreements. LAF is used to help banks in adjusting the day to day mismatches in liquidity. It is combination of repo and reverse repo rates .  
Bank Rate: it is defined in section 49 of RBI Act 1934, A rate of interest at which RBI provides long term loan to commercial bank is known as Bank Rate but at present bank rate is rate of interest at which RBI Rediscounts the bill and provide loan to government of India. 
MSF: Full name Marginal Standing Facility, this was introduced by RBI in 9 May 2011,  MSF is the window for commercial bank to govern from RBI in emergency situation interbank liquidity dries of completely. Limit 2 percent completion NDTL, minimum amount 1Cr and multiple thereafter.  This limit 2 percent should be request between 3:30-4:30 pm electrically under negotiable dealing system.  This loan is provided for only 1 day,  if any takes this loan for Friday it can repay it on Monday with same interest . 
OMO: Full name open market operation , it is introduced in 2002, seles and purchases of government securities to RBI control liquidity in the market is called open market operation.
 MSS: Full name Market Stabilisation Scheme, it is introduced in April 2004, to control Money comes from foreign. 
Term Repo:- Term Repo under LAF(Liquidity Adjustment Facility) is for 14 day and 7 day. It is introduce for seduled Commercial bank other than regional rural bank and in addition to the adjusting Liability add money market scheme. It is conducted on core banking solution (E-kubare) platform through electronic bidding. The total amount of liquidity injected is limited to  0.75 percent of NDTL(net demand and time liability) of the banking system. Auction conducted on every reporting Friday and non-rporting Friday for remaining unsubscribed. Minimum bid amount rupees 1 Cr and multiple there of conducted on Friday between 2:30 to 3:00 PM Reporting Friday: IInd and IVth Friday of any month (14 day). Non-Reporting Friday: Ist and IIIrd Friday of any month (7day).   
Repo Rate : Implemented in 1992,it is the rate at which RBI lends of commercial banks as terms loan by keeping their securities with RBI to meet their repo-repurchase or short term needs. 
Reverse Repo Rate: Introduced in November 1996,it is the process of borrowing money from banks by RBI keeping its securities as collateral with banks is known as reverse repo and interest paid by RBI to banks on such borrowing is known as reverse repo rate.  

Above methods of controlling money flow is known as Quantitative credit control method. Now Qualitative credit control method given below,  it is introduced in year 1956.   Qualitative credit control method: Regulation of consumer credit, Regulation of marginal Requirement, Credit Rationing, Moral Suasion, Direct Action etc.           
Moral Suasion - This is an informal method of monetary control. The RBI is the Central Bank of the country and thus enjoys a supervisory position in the banking system. If there is a need it can urge the banks to exercise credit control at times to maintain the balance of funds in the market. This method is actually quite effective since banks tend to follow the policies set by the RBI.  Term Repo: Repo rate and reverse repo rate.       

Structure of RBI- 
Governorone . 
Depti Governor: Four .
 Four members from local board and jonal office Delhi, Mumbai, Kolkata, Chennai .  
Two members from Ministry of Finance (i) Finance Secretary  (ii)Revenue Secretary. 
 Ten members appointed by Government of India from various field.    This group of 21 member known as Central board .  Regional office: 19                                        Sub regional office : 9                                                                                       
   History of Reserve Bank of India :-
Prior to establishment of RBI, the functions of a central bank were virtually being done by the 
Imperial Bank of India. RBI started its operations from April 1, 1935. 
It was established via the RBI act 1934, so it is also known as a statutory body. Similarly, SBI is 
also a statutory body deriving its legality from SBI Act 1955. RBI did not start as a Government 
owned bank but as a privately held bank without major government ownership. It started with a 
Share Capital of Rs. 5 Crore, divided into shares of Rs. 100 each fully paid up. In the beginning, 
this entire capital was owned by private shareholders. 
Out of this Rs. 5 Crore, the amount of Rs. 4,97,8000 was subscribed by the private shareholders 
while Rs. 2,20,000 was subscribed by central government. After independence, the government 
passed Reserve Bank (Transfer to Public Ownership) Act, 1948 and took over RBI from private 
shareholders after paying appropriate compensation. Thus, nationalization of RBI took place in 
1949 and from January 1, 1949, RBI started working as a government owned bank. 
Hilton Young Commission 
Hilton-Young Commission was the Royal Commission on Indian Currency and Finance set up by 
British Government of India in 1920s. In 1926, this commission had recommended to the 
government to create a central bank in the country. On the basis of mainly this commission, the 
RBI act was passed. 
Key Landmarks in the journey of RBI 
In 1926, the Royal Commission on Indian Currency and Finance recommended creation of a 
central bank for India. 
In 1927, a bill to give effect to the above recommendation was introduced in the Legislative 
Assembly, but was later withdrawn due to lack of agreement among various sections of 
In 1933, the White Paper on Indian Constitutional Reforms recommended the creation of a 
Reserve Bank. A fresh bill was introduced in the Legislative Assembly. 
In 1934, the Bill was passed and received the Governor General’s assent 
In 1935, Reserve Bank commenced operations as India’s central bank on April 1 as a private 
shareholders’ bank with a paid up capital of rupees five crore. 
In 1942 Reserve Bank ceased to be the currency issuing authority of Burma (now Myanmar). 
In 1947, Reserve Bank stopped acting as banker to the Government of Burma. 
In 1948, Reserve Bank stopped rendering central banking services to Pakistan. 
In 1949, the Government of India nationalized the Reserve Bank under the Reserve Bank 
(Transfer of Public Ownership) Act, 1948. 
In 1949, Banking Regulation Act was enacted. 
In 1951, India embarked in the Planning Era. 
In 1966, the Cooperative Banks came within the regulations of the RBI. 
In 1966, Rupee was devaluated for the first time. 
In 1969, Nationalization of 14 Banks was a Turning point in the history of Indian Banking.In 1973, the Foreign Exchange Regulation act was amended and exchange control was 
In 1974, the Priority Sector Advance Targets started getting fixed. 
In 1975, Regional Rural Banks started 
In 1985, the Sukhamoy Chakravarty and Vaghul Committee reports embarked the era of 
Financial Market Reforms in India. 
In 1991, India came under the Balance of Payment crisis and RBI pledged Gold to shore up 
reserves. Rupee was devaluated. 
In 1991-92, Economic Reforms started in India. 
In 1993, Exchange Rate became Market determined. 
In 1994, Board for Financial Supervision was set up. 
In 1997, the regulation of the Non Banking Financial Companies (NBFC) got strengthened. 
In 1998, Multiple Indicator Approach for monetary policy was adopted for the first time. 
In 2000, the Foreign Exchange Management Act (FEMA) replaced the erstwhile FERA. 
In 2002, The Clearing Corporation of India Ltd Started operation. 
In 2003, Fiscal Responsibility and Budget Management Act (FRBMA) enacted. 
In 2004, Liquidity Adjustment Facility (LAF) started working fully. 
In 2004, Market Stabilization Scheme (MSS) was launched. 
In 2004 Real Time Gross Settlement (RTGS) started working. 
In 2006, Reserve Bank of India was empowered to regulate the money, forex, G-Security and 
Gold related security markets. 
In 2007, Reserve bank of India was empowered to regulate the Payment systems. 
Original Headquarters Of RBI 
Original headquarters of RBI were in Kolkata, but in 1937, it was shifted to Shahid Bhagat Singh 
Marg, Mumbai, which serves as current headquarters of RBI.                         

No comments:

Post a Comment

Bank Po/Clerk Practice Link OR Resources ( Top resources)

(1) TestZone(SmartKeeda.com) , www. AspirantsZone . (2)Www. AffairscloudZone .  (3)www. bankersaddazone .  (4)www. testbookzone .  (5)www. ...