Rbi and Its Roles

Topics: Mutual fund, Investment, Monetary policy Pages: 5 (1513 words) Published: March 22, 2013
1. RBI and its Roles
Reserve Bank of India (RBI)
Reserve Bank of India (RBI) is the central bank of India. It monitors, formulates and implements India’s monetary policy. Established in the year 1935, RBI was nationalized in the year 1949. Owned fully by the Government of India, Reserve Bank has 22 regional offices in various state capitals of India with its headquarters located in Mumbai. It has a majority stake in the State Bank of India. Role of RBI

RBI formulates the monetary policy, thus regulating and supervising the economy of India. RBI is the supreme banking authority in India. It sets the guidelines according to which the banking operations and financial systems within the country functions. i. Issuer of currency

RBI is the sole authority for the issue of currency in India. Major currency is in the form of RBI notes, such as notes in the denominations of two, five, ten, twenty, fifty, one hundred, five hundred, and one thousand.RBI has two departments - the Issue department and Banking department. The issue department is dedicated to issuing currency. All the currency issued is the monetary liability of RBI that is backed by assets of equal value held by this department. Assets consist of gold, coin, bullion, foreign securities, rupee coins, and the government’s rupee securities. The department acquires these assets whenever required by issuing currency. The conditions governing the composition of these assets determine the nature of the currency standard that prevails in India. The Banking department of RBI looks after the banking operations. It takes care of the currency in circulation and its withdrawal from circulation. Issuing new currency is known as expansion of currency and withdrawal of currency is known as contraction of currency. ii. Banker to the government

RBI acts as banker, both to the central government and state governments. It manages all the banking transactions of the government involving the receipt and payment of money. In addition, RBI remits exchange and performs other banking operations. RBI provides short-term credit to the central government. Such credit helps the government to meet any shortfalls in its receipts over its disbursements. RBI also provides short term credit to state governments as advances. RBI also manages all new issues of government loans, servicing the government debt outstanding, and nurturing the market for government's securities. RBI advises the government on banking and financial subjects, international finance, financing of five-year plans, mobilizing resources, and banking legislation. iii. Managing government securities

Various financial institutions such as commercial banks are required by law to invest specified minimum proportions of their total assets/liabilities in government securities. RBI administers these investments of institutions. The other responsibilities of RBI regarding these securities are to ensure - * Smooth functioning of the market

* Readily available to potential buyers
* Easily available in large numbers
* Undisturbed maturity-structure of interest rates because of excess or deficit supply * Not subject to quick and huge fluctuations
* Reasonable liquidity of investments
* Good reception of the new issues of government loans
iv. Banker to other Banks
The role of RBI as a banker to other banks is as follows:
* Holds some of the cash reserves of banks
* Lends funds for short period
* Provides centralized clearing and quick remittance facilities RBI has the authority to statutorily ensure that the scheduled commercial banks deposit a stipulated ratio of their total net liabilities. This ratio is known as cash reserve ratio [CRR]. However, banks can use these deposits to meet their temporary requirements for interbank clearing as the maintenance of CRR is calculated based on the average balance over a period. v. Controller of money supply and credit

RBI has to regulate the claims...
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