Banking and Financial Awareness (RBI)

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By admin on Mar 03, 2011 with Comments 56

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.

Taken from MP

PLEASE ADD MORE POINTS RELATED TO RBI IF YOU HAVE ANY MORE RELEVANT POINTS, IN THE COMMENTS GIVEN BELOW.

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Banking and Financial Awareness (RBI)

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