STRUCTURE AND ORGANISATION OF RBI: AN OVERVIEW

Submitted to:
Dr. Y. D. Papa Rao
Faculty, Law of Banking
Submitted by:
Viplav Baranwal
Roll No 144
Semester VII, B. A., LL. B (Hons.)

Submitted on:
26th October, 2013

Hidayatullah National Law University Raipur, Chhattisgarh

TABLE OF CONTENTS

_____________________________________________________
S. NO.

PARTICULARS

PAGE NO (s).

_______________________________________________________________________
1.

Acknowledgment

2.

Research Methodology

4.

Introduction

5.

Background Story

6.

Structural Organization of Reserve Bank of India

7.

Functions

13

8.

Major Banking Sector Reforms since 1991

20

9.

Conclusion

21

10.

Bibliography

22

ACKNOWLEDGEMENTS

I feel highly elated to work on the topic.

The practical realization of this project has obligated the assistance of many persons. I express
my deepest regard and gratitude for our Faculty of Law of Banking. Their consistent supervision,
constant inspiration and invaluable guidance have been of immense help in understanding and
carrying out the nuances of the project report. I take this opportunity to also thank the University
for providing extensive database resources in the Library and through Internet.

Viplav Baranwal
Semester-VII

RESEARCH METHODOLOGY:

Secondary data has been used. The study is descriptive and analytical in nature.
Books and other reference as guided by Faculty of Law of Banking have been primarily helpful
in giving this project a firm structure. Websites, dictionaries and articles have also been referred.

INTRODUCTION

A bank is a financial institution that provides banking and other financial services to their
customers. A bank is generally understood as an institution which provides fundamental banking
services such as accepting deposits and providing loans. There are also nonbanking institutions
that provide certain banking services without meeting the legal definition of a bank. Banks are a
subset of the financial services industry.
Indian Banking Sector has gone through a series of reforms after the liberalization of the
economy and introduction of financial sector reforms. In the last two decades of changes
happening in the Indian Economy, the Banking Sector has played a pivotal role in giving a new
direction to economy. The changes in the banking sector can be summed up in two aspects first
it is moving towards the global standards and norms and second the system of banking has
become more customers oriented now. A host of new financial products have been introduced
and the overall financial environment in the country is getting a lot more mature with people
taking interest in the new products. The apex court of India has played an important role in
molding the face of Indian Banking Sector.
The reserve bank of India is a central bank and was established in April 1, 1935 in accordance
with the provisions of reserve bank of India act 1934. The central office of RBI is located at
Mumbai since inception. Though originally the reserve bank of India was privately owned, since
nationalization in 1949, RBI is fully owned by the Government of India. It was inaugurated with
share capital of Rs. 5 Crores divided into shares of Rs. 100 each fully paid up. The Central Bank
is the apex body of the money market of every nation. In India, central bank is known as Reserve
Bank of India, in Bangladesh, it is referred as Bangladesh Bank, in USA it is called as Federal
Bank, in Europe it is known as European Central Bank. Irrespective of the name and the nation,
previously the roles and responsibilities of the central banks were confined to certain stereotype
activities such as controller of credit in the economy, lending the fund to the commercial banks
as the lender of the last resort, providing the loan and advances to the Government of the nation
in the form of deficit financing, controller of the foreign exchanges by devaluating and
revaluating the home currency to ensure that the value of the currency remains within a
particular predefined range as a policy resolution. In this respect, the RBIs role in banking
supervision has changed significantly from 1992 which should be considered as milestone year
in the history of Indian banking sector. RBI is governed by a central board (headed by a
governor) appointed by the central government of India. RBI has 22 regional offices across

India. The reserve bank of India was nationalized in the year 1949. The general superintendence
and direction of the bank is entrusted to central board of directors of 20 members, the Governor
and four deputy Governors, one Governmental official from the ministry of Finance, ten
nominated directors by the government to give representation to important elements in the
economic life of the country, and the four nominated director by the Central Government to
represent the four local boards with the headquarters at Mumbai, kolkata, Chennai and New
Delhi. Local Board consists of five members each central government appointed for a term of
four years to represent territorial and economic interests and the interests of cooperative and
indigenous banks.1

BACKGROUND STORY

1 Prof.(Dr.) G.S. popli & Sima Kumari, An empirical study on the concept of Universal banking from Indias
perspective, (September 16, 2013), ssrn.com/abstract=2315462

The great depression in USA during 1930 created a knee jerking effect in the global economy.
All on a sudden almost all the major banks in USA went for bankruptcy. The top management of
these banks siphoned their fund into European market and parked the fund into Swiss banks. It
was a bolt from the blue for all USA citizens who suddenly realized in one fine morning that
there was hardly any money in their bank accounts. As a result their purchasing power decreased
to a significant extent and all the macro economic variables such as income, employment, output
and price started to move to the downward direction in a vicious 6
circle. On the other hand, exorbitant amount of cash piled up in different banks of Switzerland
due to money laundering. Germany started to borrow fund on a continuous basis from the banks
of Switzerland to purchase the arms which would be used in war. This was considered as
sovereign debt of Germany. The fascist leader Hitler financed the entire expense of World War II
by borrowing the money from Swiss banks. At the end of World War II, German economy
crashed down and German was unable to repay their debts which created an adverse impact on
the fundamental of all the banks which were operating in Switzerland as huge bad debt was
accumulated in their books of account. The Basel Committee of Banking Supervision was
formed in 1945 to create a framework which can save the economy of the member nations.
Initially the G-7 nations and oil rich nations were the members of this committee. Basel
committee met in 1945, 1954, 1961, 1966 and 1972. The sudden collapse of Soviet Russia and
emergence of BRIC nations compelled Basel committee to include India as a member nation in
1984. Implementation of Basel accord took place in 1992 when waves of privatization,
liberalization and globalization entered in India.2

2 The Changing Role of RBI in Bank Supervision with the Introduction of Risk Based
Parameters, (September 16, 2013), SSRN.com-id2315462

ORGANISATIONAL STRUCTURE OF RESERVE BANK OF INDIA

RBI or Federal Reserve Bank of India is understood to be the central banking institution in India
that has the duty of controlling the financial policy of the Indian government. The organizational
Structure of Reserve bank of India can be studied in three different parts.
1. The central board of directors: It is the main committee of the central bank. The
directors here are being appointed by the government of India for the term of four years.
The central board of directors are vested with the organization and the management of
reserve bank of India. There are twenty members that constitute the central board of

directors. The twenty members are as follows:

One governor, who is appointed by the government of India and is the highest authority
of Reserve bank of India, The duration of his term, is of five years. The governor can also
be re-appointed.

Four governors deputy, also nominated by the central government for the term of five
years.

Fifteen directors, who are also appointed by the central government. Out of these fifteen
directors four directors are from four local boards each are nominated by the central
government.

Ten administrators nominated by the Central Government are among the consultants of
commerce, industries, finance, political economy and cooperation. The finance secretary
of the govt. of Republic of India is additionally nominated as Govt. officer within the
board. 10 administrators are nominated for a term of four years. The Governor acts as the
Chairman of the Central Board of administrators. In his absence a deputy Governor
nominative by the Governor, acts because the Chairman of the Central Board. The
Governor and 4 deputy Governors are full time officers of the Bank.

2. Local Boards or the Supportive Bodies: There are 4 local boards from the regional
areas of the four metros of the country namely, new Delhi, Kolkata, Mumbai and
Chennai. The local board is consisting of each 5 members, who are appointed by the
central government for the term of four years. They represent economic and territorial
interests as well as the interests of the indigenous banks.

3. Offices and Branches of Reserve Bank of India: The Federal Reserve Bank of India
has four zonal offices. Nineteen of its regional offices are at the most state capitals and at
many major cities in India. Few of them are settled in Ahmadabad, Bhopal Bangalore,
Chandigarh, Delhi, Chennai, Guwahati, Jaipur, Hyderabad, Patna Kolkata, Mumbai
Lucknow, and Thiruvananthapuram. Besides, nine of its sub-offices are at Agartala,
Dehradun, Gangtok, Panaji Kochi, Ranchi, Raipur Shimla Shillong, and Srinagar.
The bank has additionally 2 coaching faculties for its officers, viz. Federal Reserve Bank
workers school at metropolis and school of Agricultural Banking at Pune. There are four Zonal
coaching Centres at Bombay, Chennai, metropolis and New Delhi.3

Departments of RBI
The various departments of RBI are given below:
1. Department of Information Technology
2. Department of Economic Analysis and Policy
3. Department of Statistical Analysis and Computer Services
4. Monetary Policy Department
5. Premises Department
6. Secretary's Department
7. Press Relations Division
8. Exchange Control Department
9. Rural Planning and Credit Department
3 Structure and Organization of Reserve bank of India, (September 13, 2013)
http://sprinki.quinki.com/index.php/2013/07/structure-of-reserve-bank-of-india/

10. Financial Institutions Division

11. Department of Banking Supervision
12. Department of Banking Operations and Development
13. Department of Financial Companies
14. Department of Non-Banking Supervision
15. Department of Administration and Personnel Management
16. Human Resources Development Department
17. Deposit Insurance and Credit Guarantee Corporation
18. Inspection Department
19. Urban Banks Department
20. Department of Currency Management
21. Department of External Investments and Operations
22. Department of Expenditure and Budgetary Control
23. Department of Government and Bank Accounts the local
24. Internal Debt Management Cell
25. Industrial and Export Credit Department
26. Legal Department4
4 Nupur Singh, Management and Administration of Reserve Bank of India, (September 12, 2013),
http://www.preservearticles.com/2012033129470/management-and-administration-of-reserve-bank-ofindia.html

CENTRAL BOARD OF
DIRECTORS

GOVERNOR
Dr. Raghuram Rajan

DEPUTY GOVERNORS

Dr. K. C. CHAKRABARTYSHRI ANAND SINHA

SHRI H.R.
KHAN
Co-ordination Work

Executive Directors
Secretary's Department
(Shri Bazil Shaikh,
PCGM & Secretary)
Shri G.Gopalakrishna

Department of Banking Supervision

(Shri G. Jaganmohan Rao, PCGM)
Financial Stability Unit
(Smt. R.G. Warrier, CGM)

Dr. Urjit R.
Patel

Shri D.K. Mohanty

Urban Banks Department

(Shri A. K. Bera, PCGM)
Shri S. Karuppasamy (also
First Appellate Authority under
Right to Information Act)

Premises Department (Shri

K. R. Ananda, PCGM)
Legal Department
(Shri G.S. Hegde, Principal Legal
Adviser)

Human Resource Management

Department
(Shri U. S. Paliwal, PCGM)

Central Security Cell

(Shri D. Sivanandan,
Security Adviser)

Department of Currency
Management
(Shri B. P. Vijayendra, PCGM)

Internal Debt Management

Department
(Shri K.K. Vohra, PCGM)

Shri R. Gandhi

Department of Non-Banking
Supervision
(Shri N. S. Vishwanathan,
PCGM)
Shri P. Vijaya Bhaskar

Department of Expenditure &

Budgetary Control
(Shri S. Ganesh, PCGM)
Risk Monitoring
Department (Shri
Rajeshwar Rao, CGM)

Shri B. Mahapatra

Department of Banking
Operations and Development
(Shri Chandan Sinha,
PCGM)

Department of Government &

Bank Accounts
(Shri S. Ganesh Kumar, CGM-iC)
Inspection Department
(Shri M. Sebastian,

Department of Payment
and Settlement Systems
(Shri Vijay Chugh, CGM)
Department of
Information
Technology
(Dr. A. S. Ramasastri, CGM-inCharge)

Shri G. Padmanabhan

Shri Jasbir Singh

Dr. (Smt.) Deepali Pant

Joshi (also Alternate
Appellate Authority
under Right to
Information Act)

Customer Service
Department (Smt. Supriya
Pattnaik, Chief General
Manager)
Rural Planning & Credit
Department
(Shri A. Udgata, PCGM)

Foreign Exchange Department

(Shri R. N. Kar, CGM-in-Charge)
Department of External
Investments
& Operations
(Smt. Madumita Sarkar
Deb, CGM -in Charge)

FUNCTIONS
The RBI Act 1934 was commenced on April 1, 1935. The Act, 1934 provides the statutory basis
of the functioning of the bank. The bank was constituted for the need of following:
- To regulate the issues of banknotes.
- To maintain reserves with a view to securing monetary stability
- To operate the credit and currency system of the country to its advantage.
Functions of RBI as a central bank of India are explained briefly as follows:

Bank of Issue: The RBI formulates, implements, and monitors the monitory policy. Its
main objective is maintaining price stability and ensuring adequate flow of credit to

productive sector.
Regulator-Supervisor of the financial system: RBI prescribes broad parameters of
banking operations within which the countrys banking and financial system functions.
Their main objective is to maintain public confidence in the system, protect depositors

interest and provide cost effective banking services to the public.

Manager of exchange control: The manager of exchange control department manages
the foreign exchange, according to the foreign exchange management act, 1999. The
managers main objective is to facilitate external trade and payment and promote orderly

development and maintenance of foreign exchange market in India.

Issuer of currency: A person who works as an issuer, issues and exchanges or destroys
the currency and coins that are not fit for circulation. His main objective is to give the

public adequate quantity of supplies of currency notes and coins and in good quality.
Developmental role: The RBI performs the wide range of promotional functions to
support national objectives such as contests, coupons maintaining good public relations

and many more.

Related functions: There are also some of the related functions to the above mentioned

main functions. They are such as, banker to the government, banker to banks etc.
Banker to government performs merchant banking function for the central and the state
governments; also acts as their banker.
Banker to banks maintains banking accounts to all scheduled banks.
Controller of Credit: RBI performs the following tasks:
It holds the cash reserves of all the scheduled banks.

 It controls the credit operations of banks through quantitative and qualitative controls.
It controls the banking system through 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. 5

Supervisory Functions: In addition to its traditional central banking functions, the

Reserve bank performs certain non-monetary functions of the nature of supervision of
banks and promotion of sound banking in India. The Reserve Bank Act 1934 and the
banking regulation act 1949 have given the RBI wide powers of supervision and control
over commercial and co-operative banks, relating to licensing and establishments, branch
expansion, liquidity of their assets, management and methods of working, amalgamation,
reconstruction and liquidation. The RBI is authorized to carry out periodical inspections
of the banks and to call for returns and necessary information from them. The
nationalisation of 14 major Indian scheduled banks in July 1969 has imposed new
responsibilities on the RBI for directing the growth of banking and credit policies
towards more rapid development of the economy and realisation of certain desired social
objectives. The supervisory functions of the RBI have helped a great deal in improving
the standard of banking in India to develop on sound lines and to improve the methods of
their operation.

Promotional Functions: With economic growth assuming a new urgency since

independence, the range of the Reserve Banks functions has steadily widened. The bank
now performs a variety of developmental and promotional functions, which, at one time,
were regarded as outside the normal scope of central banking. The Reserve bank was
asked to promote banking habit, extend banking facilities to rural and semi-urban areas,
and establish and promote new specialized financing agencies.

5 Commercial bank of India: A Beginners Module,(September 13, 2013)

www.nseindia.com/content/ncfm/ncfm_CBBM_workbook.pdf

Supervisory role of the Central Bank: Trust in policymaking institutions is an essential

aspect of good governance in democracy. Institutional trust, which implies one s
prediction that everybody can rely on benevolent and competent policies of a given
institution is important to a policy making body because its legitimacy and policy
efficacy depend on it. If the common perception of the citizens of the nation is that an
institution is not enough trustworthy, they may not adhere to its policy decisions or they
may act with the purpose of undermining the authority of the institution. In India, private
banks are participating in para banking activities by creating subsidiary. For instance,
ICICI bank is doing the core banking activities where its subsidiary ICICI Direct is
dealing with the brokerage business and its other subsidiaries such as ICICI Prudential
and ICICI Lombard are offering insurance services. Kotak Mahindra Bank is offering
core banking services, its subsidiary Kotak Mahindra Asset Management Company is
selling the mutual fund, Kotak securities is providing the brokerage service. On the other
hand HDFC is a holding company which is NBFC and providing finance for housing
development purpose. It is offering banking services by its subsidiary HDFC bank; it is
dealing the mutual fund by its subsidiary HDFC Asset Management Company, it is
offering insurance service by its subsidiaries HDFC Standard Life Insurance Limited and
HDFC Ergo General Insurance Company Limited. PSU banks are dealing with parabanking activities by creating separate division. The State bank of India is offering core
banking activities, SBI Mutual fund is dealing with the business of asset management
company, SBI life is playing in Life insurance market. Still Indian banking sector is more
or less quite conservative by nature as it did not allow the banking company to do any
other non- banking business. Similarly players of any other sector except banking are not
yet provided the banking licenses by RBI. As a result the risk of money laundering as
well as fund siphoning can be reduced to a significant extent. The Parliament of India has
approved the Banking Law bill on 18th December 2012 which could eventually see many
of Indias largest business houses return to banking sector from where they were
compelled to exit after the ex-Prime Minister of India , Mrs Indira Gandhi nationalized
the banks. The bill has created the provision that voting right in Private Banks will be
confined to the shareholders who have the ownership of at least 26% and voting right in
Public Sector Undertaking Banks will be restricted to the shareholders who have the

ownership of at least 10%. The minority shareholders can exercise their franchise only by
referendum where opinions of the shareholders are taken either in favour or against of
any motion. Apart from these, according to this new bill, RBI will have the power to
supersede the boards of the bank to inspect the books of accounts of the associate
companies of the bank and RBI will have the power to inspect the books of other
subsidiaries of the bank with the concerned regulator. The bill allowed the State owned
banks to raise capital through right issue and the competitive commission of India will
regulate anti competitive practices and would also have power to approve the corporate
restructuring such as merger and acquisition (ETIG Database).
Earlier RBI used to follow the CAMEL model for supervising the banks. According to this
approach, emphasis was provided to the few parameters such as capital, asset quality of the bank,
management quality, earning quality or net interest margin of the bank, liquidity position of the
bank as well as sensitivity of the banks toward the market risk. Apart from CAMEL, offsite
monitory and surveillance system, consolidated financial statement and consolidated prudential
report, revised long form audit report were used as the tools of supervision by the RBI. A gradual
slow but steady and silent shift took place from CAMEL based supervision to risk based
supervision. The basic purpose of risk based supervision is to develop a risk profiling for each
bank. A typical risk profile document as mentioned by RBI incorporates CAMEL s rating with
trends, detail description of key risk features captured under each CAMEL component, summary
of key business risks, SWOT analysis as well as sensitivity analysis (Yamanandra, 2003).The
risk based supervision provides major emphasis on risk where risk arises from the asset liability
mismatch in banking sector. A vital issue in the strategic bank planning is asset and Liability
Management (ALM).It is the assessment and management of financial, operational, business
functions which are endogenous by nature and management as well as mitigate different types of
risks which are exogenous by nature. The objective of ALM is to maximize returns through
efficient fund allocation given an acceptable risk structure. ALM is a multidimensional process,
requiring simultaneous interactions among different dimensions. If the simultaneous nature of
ALM is discarded, decreasing risk in one dimension may result in unexpected increases in other

risks (Tektas, 2009). The excessive off balance sheet exposure is another area of risk faced by the
banks.6

Performance Measurement of the Bank: RBI has to supervise the performance of

different PSU banks, the old generation private banks, the new generation private banks
as well the foreign banks. There are multifaceted approaches for the performance
evaluation of the different banks, but hardly any standardized approach is prevalent. The
performance of a bank can be analyzed by the four prolonged approach which is
composed of growth, size, sustainability of operations and risk management. Growth
incorporates growth rate in demand deposit, growth rate in loan and advances, growth
rate in core fee income, growth rate in operating profit, growth rate in total deposit and
growth rate in net interest income. Size incorporates volume and value of demand
deposit, loans and advances, Balance Sheet size of the bank, total number of branches
operating, total number of ATMs as well as total number of employees of the bank both
in the national and international level. Sustainability of the operation includes asset
quality, productivity and efficiency of the bank. Asset quality incorporates growth rate of
Non Performing Asset, NPA provision coverage and the ratio of net NPA to net advances.
Productivity is measured by cost to average assets ratio, operating profit per branch,
operating profit per employee. Efficiency is judged by cost to income ratio, ratio of
operating profit to total income, return on average assets, non interest income to total
income, return on average net worth, net interest income to average working funds, net
interest income , the ratio of net interest income to total average assets and cost of fund.
Risk is measured by the capital adequacy ratio and the ratio of Tier 1 capital to total
shareholders capital (Roy, 2012). A new conceptual dimension is identified to measure
the risk of the bank which is known as Knock out ratio. The knock out ratio is computed
by the ratio of gross NPA to Tier 1 capital of the bank. A bank with high knockout ratio
indicates banks credit appraisal procedure is faulty for which non performing loans are
accumulated.

6 Functions of RBI, (September 13, 2013) http://www.technofunc.com/banking/index.php/bankingawareness/banking-in-india/item/functions-of-rbi-reserve-bank-of-india

Credit Control Policies of the Central Bank: The Central bank has the supreme
authority to decide about the monetary policy of a nation. The liquidity control
mechanism followed by the RBI consists of both qualitative and quantitative policy.
Usually the quantitative controls are alternatively termed as direct control which is
equally applicable to the all sectors. The instruments of the quantitative control includes
Bank Rate, Open Market Operations (OMO), Cash Reserve Ratio (CRR), Statutory
Liquidity Ratio (SLR), Repurchase Offer (REPO) and Reverse Repurchase Offer(Reverse
REPO). When the purchasing power of the citizen of the nation is suffering from high
inflation, the RBI will raise Bank Rate, CRR, SLR, Repo and Reverse Repo rate to
reduce the credit creating capacity of the commercial banks. Simultaneously the RBI will
prefer to sell their securities to the commercial bank so that excess liquidity of the bank
can be reduced which will automatically curb the lending power of the banks. When the
Government of India smells the rat of recession, RBI reduces the bank rate, CRR, SLR,
repo and reverse repo rate to boost the credit creating ability of the banks. Similarly RBI
prefers to buy the securities from commercial banks to enhance the liquidity position of
the commercial banks. The qualitative control or indirect control implies selective control
as it is not applied to all the sectors. Selective control includes regulation of margin
requirement, moral suasion and regulations of consumer credit. If the inflation rate is
quite high, RBI will raise the margin requirement which will automatically reduce the
lending power of the bank. Similarly RBI will make an appeal to all the commercial
banks not to accept those collaterals which were accepted earlier. Enhancing the standard
of collaterals, by default RBI will be able to reduce the circulation of money within the
economy. Another stringent action RBI can take by reducing the loan ceiling for each
listed items and decreasing the number of installments within which debtors have to
repay the entire loan. On the contrary, in the anticipation of recession, depression or
liquidity crunch in the coming future, RBI reduces the margin requirement, increases the
credit ceiling as well as make a moral appeal to the commercial banks to accept
comparatively inferior quality collateral just to ensure enough liquidity flow in the
economy.

Sterilization Policy of the Central Bank: RBI plays the crucial role of sterilization
mechanism. In the era of globalization, India is following flexible exchange rate policy
where the exchange rate is market determined but the government reserves the provision
to intervene in extreme cases. It is known as dirty float mechanism. When there is an
excess inflow of the foreign fund in the economy as Foreign Institutional Investors (FIIs)
are penetrating into Indian Market in order to enjoy the interest rate arbitrage, as an
immediate effect, there will be an appreciation of the home currency. If the home
currency appreciates beyond a certain level due to continuous buying pressure, exporting
sectors are likely to suffer a huge jolt. RBI usually intervenes in the process by buying the
dollar and selling rupee. Technically it is injection of the liquidity in the body of the
economy by RBI to stop further appreciation of home currency. To hedge the risk of
inflation, RBI issues the Government securities such as treasury bills which are known as
Market Stabilization Schemes. These T bills are held to maturity in nature as they are not
traded in the secondary market. These bills are issued to take away the excess liquidity
from the economy. On the other hand, once there is doom and gloom situation in the
economy, FIIs are pulling out their funds from the domestic market. Due to excessive
selling pressure, home currency depreciates with respect to foreign currency which
creates a devastating effect in the importing sector. If the foreign currency depreciates
beyond a certain level, current account deficit of the nation will be wider. Under these
circumstances, RBI comes as rescuer by selling the dollar and buying the rupee. This
process is known as absorption of the liquidity from the economy. The injection and
absorption of the liquidity to the economy by RBI is known as sterilization process which
actually immunes the nation against the volatility of exchange rate to a significant extent.7

MAJOR BANKING SECTOR REFORMS SINCE 1991

7 Information Portal,RBI(September 12, 2013) http://iknow.co.in/rbi.html

The economic reforms initiated in 1991 also embraced the banking system. Following are the
major reforms aimed at improving efficiency, productivity and profitability of banks.
New banks licenced in private sector to inject competition in the system.10 in 1993 and 2 more
in 2003. Another lot of new banks will be licenced in the next few months.
FDI+FII up to 74% allowed in private sector banks.
Listing of PSBs on stock exchanges and allowing them to access capital markets for
augmenting their equity, subject to maintaining Government shareholding at a minimum of
51%. Private shareholders represented on the Board of PSBs.
Progressive reduction in statutory pre-emption (SLR and CRR) to improve the resource base of
banks so as to expand credit available to private sector.SLR currently at 23% (38.5% in 1991)
and CRR at 4% (15% in 1991).
Adoption of international best practices in banking regulation. Introduction of prudential norms
on capital adequacy, IRAC (income recognition, asset classification, provisioning), exposure
norms etc.
Phased liberalisation of branch licensing. Banks can now open branches in Tier 2 to
Tier 6 centres without prior approval from the Reserve Bank.
Deregulation of a complex structure of deposit and lending interest rates to strengthen
competitive impluses, improve allocative efficiency and strengthen the transmission of
monetary policy.
Base rate (floor rate for lending) introduced (July 2010). Prescription of an interest rate floor on
savings deposit rate withdrawn (October 2011).
Functional autonomy to PSBs.
Use of information technology to improve the efficiency and productivity, enhance the payment
and settlement systems and deepen financial inclusion
Strengthening of Know Your Customer (KYC) and Anti-money Laundering (AML) norms;
making banking less prone to financial abuse.
Improvements in the risk management culture of banks.8

8 DR. Duvvury Subbarao, Banking Structure in India: Looking Ahead by Looking Back (September 13,
2013), http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=828

CONCLUSION
It is a universal saying that change is the only constant in every sphere of life. Same is applicable
for RBI also. Majority of the Indian banks have more or less successfully implemented Basel II
norms. One of the pillars of Basel II is emphasizing on minimum capital requirement which
implies if the credit rating of bank is outstanding, they can maintain lesser capital than the
stipulated norms. Earlier credit ratings of the banks are being done by the external credit rating
agencies such as CRISIL, ICRA etc. According to the modern IRB based approach, banks are
asked to develop its own internal credit rating system. Few Indian banks have already developed
their own internal credit rating framework such as SBI, ICICI bank and HDFC bank. But the
majority of Indian banks are striving to implement this IRB approach. More over Indian banks
are passing through a critical phase as this is the conversion phase from Basel II to Basel III. The
implementation of Basel III requires huge amount of capital. Simultaneously maintaining an
extraordinarily higher capital adequacy ratio is also not the proper solution. Nobody can deny the
fact that maintenance of certain amount of capital adequacy ratio is required as it hedges the risk
against liquidity crisis. Similarly it is equally true that an extremely high capital adequacy ratio
reduces the credit creating capacity of the bank which creates an adverse impact on the profit
margin of the bank. Another tendency has been observed that in order to clean their balance
sheets, banks are transferring their non performing asset to its Corporate Debt Restructuring
(CDR) cell and CDRs are restructuring the loan by lowering the interest rate and enhancing the
loan repayment schedule without addressing the 28
fundamental problems. In order to stimulate capital market, the RBI is ultimately compelled to
reduce CRR, Repo and Reverse Repo rate by 25 basis points on 29th January 2012 which will be
effective from the fortnight beginning February 9, 2013(source: Economic Times on line
database as on 29.1.2013) The Repo rate has been reduced to 7.75%, Reverse Repo rate has been
reduced to 6.75% and CRR has been reduced to 4% which enhances the probability that inflation
rate may go up in near future. Therefore the RBI has to simultaneously discharge various roles
such as role of supervisor, monitor, liquidity controller as well as policy maker in such a way so
that maximum benefit can be provided to all stakeholders of the nation.

BIBLIOGRAPHY
Internet References

http://sprinki.quinki.com/index.php/2013/07/structure-of-reserve-bank-of-india/
http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=828
http://iknow.co.in/rbi.html
http://www.technofunc.com/banking/index.php/banking-awareness/banking-inindia/item/functions-of-rbi-reserve-bank-of-india
www.nseindia.com/content/ncfm/ncfm_CBBM_workbook.pdf

http://www.preservearticles.com/2012033129470/management-and-administration-of-reservebank-of-india.html