Beruflich Dokumente
Kultur Dokumente
The Monetary and is the policy statement, traditionally announced twice a year, through which the Reserve Bank of India seeks to ensure price stability for the economy. The Monetary Policy aims to maintain price stability, full employment and economic growth. It can increase or decrease the supply of currency as well as interest rate, carry out open market operations, control credit and vary the reserve requirements. The monetary management of a country is how well the central bank of a country implements the monetary policies and how well the government controls the various financial aspects of the country.
help these countries in containing inflationary pressures and achieving balance of payment equilibrium.
fluctuations in the internal price level not only disrupt the smooth working of countys economy but theses also lead to insecurity and social injustice. Increasing cost of labour and materials also increases the various cost of projects, which adversely affects the rate of economic growth. The effect of price instability is always commutative in character. Thus, central banks of developing countries should pursue such type of monetary policy which may help in maintaining price stability over a long period so that development activities may go uninterrupted. 4.) Making balance of payment favourable All most all developing countries have to import capital goods, machinery, equipments, technical know-how etc. in primary stages of progress. Consequently, their imports exceed the exports and balance of payment becomes unfavourable. Monetary policy should be directed towards maintaining stability in exchange rates and removing disequilibrium in balance of payments. 5.) Inducement to saving In present time capital formation depends upon saving. Object of monetary policy in developing country is promoting savings, their mobilization and their investment in productive activities. Central bank of the country has to provide adequate banking facilities to the public so that they may deposit their small savings with the banking institutions, which may later on be utilized for investment purpose.
6.) Proper policy of interest rate The structure of interest rate is generally not conductive to economic growth in developing countries- the rates of interest do not only differ according to different time, schedules but also differ in various regions and business activities. High rates of interest discourage public and private investments. The central bank is required to formulae such a policy as regard the rate of interest which may induce the investors to go in for more loans and advances from the commercial banks and financial institutions.
Reserve bank of India (RBI) is the central bank of India. According to preamble of the reserve bank of India act, the main function of the bank is 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. The various functions performed by the RBI can be conveniently classified in three parts which are as follows: 1.) 2.) 3.) Traditional central banking functions. Promotional functions. Supervisory functions.
3. Bankers Bank and Lender of the Last Resort The Reserve Bank of India acts as the bankers' bank. The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible securities or get financial accommodation in times of need or stringency by rediscounting bills of exchange. Since commercial banks can always expect the Reserve Bank of India to come to their help in times of banking crisis the Reserve Bank becomes not only the banker's bank but also the lender of the last resort. 4. Controller of Credit The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India. It can do so through changing the Bank rate or through open market operations. The Reserve Bank of India is armed with many more powers to control the Indian money market. Every bank has to get a license from the Reserve Bank of India to do banking business within India, the license can be cancelled by the Reserve Bank of certain stipulated conditions are not fulfilled. Every bank will have to get the permission of the Reserve Bank before it can open a new branch. Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail, its assets and liabilities. This power of the Bank to call for information is also intended to give it effective control of the credit system. The Reserve
Bank has also the power to inspect the accounts of any commercial bank. 5. Custodian of Foreign Reserves The Reserve Bank of India has the responsibility to maintain the official rate of exchange. The Reserve Bank has the responsibility of maintaining fixed exchange rates with all other member countries of the I.M.F. Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India's reserve of international currencies. The vast sterling balances were acquired and managed by the Bank. Further, the RBI has the responsibility of administering the exchange controls of the country.
Promotional functions
The scope of the functions performed by the reserve bank has further widened after the introduction of economic planning in the country. The bank now performs a variety of promotional and developmental functions. The RBI has to provide facilities for agricultural and industrial finance. 1.) RBI and agricultural credit The banks responsibility in this field has been occasioned by the pre-dominantly agricultural basis
of the Indian economy and the urgent need to expand and coordinate the credit facilities available to the rural sector. The RBI has set up a separate agricultural department to maintain an expert staff to study all questions of agricultural credit and coordinate the credit facilities available to the rural sector. After the establishment of the NABARD on july12, 1982, all the functions of RBI relating to rural credit have been transferred to this new agency. 2.) Reserve bank of India and industrial finance The RBI has also helped in establishment of other financial institution such as the industrial Development bank of India, the Industrial Reconstruction Bank of India, Unit trust of India, etc.
Supervisory functions
The banking regulation act, 1949, provides wide powers to the reserve bank to regulate and control the activities of banks to safeguard the interests of depositors. The supervisory functions of RBI can be summarized as follows:It grants license to companies wishing to commence banking business in India. 2. It sets out capital, reserves and liquidity limits for the banks. 3. It grants permission to banks to establish new branches in unbanked and other areas of the country.
1.
4. It can inspect any banking company to safeguard the interest of the depositors and to build up and maintain a sound banking system in conformity with the banking laws and regulation as well as the countrys socio economic objectives. 5. It can prohibit banks from engaging in trading activities, exempt in realization of the security given to be held by it. 6. It takes initiative in the building up of institutional arrangements to impart training to banking personnel. In brief, the reserve bank of India is performing both traditional central banking function and developmental functions for the steady growth of Indian economy.
The reserve bank of India makes use of both quantitative (general) and qualitative (selective) methods of credit control.
rate is generally followed by a fall in the interest rate which encourages investments. 2.) Open market operations Open market operations refer, broadly, to the purchase and sale by the central bank of a variety of assets such as foreign exchange, gold, government securities and even company shares. The reserve bank of India is authorized under the RBI Act, 1934, to purchase or sell the Government securities. After 1951, the reserve bank decided not to purchase the Govt. securities; instead, the bank provides temporary accommodation against collateral of Govt. securities. 3.) Variable Reserve Requirement The commercial banks in India are required to maintain statutory cash reserves wit the reserve bank of India and are required to maintain statutory liquidity requirements. Statutory cash reserves refer to that portion of total deposits of a commercial bank which it has to keep with the reserve bank in the form of cash reserves. Originally, scheduled commercial banks were required to maintain with the reserve bank statutory cash reserve of an amount equal to not less than 3 per cent of their demand and time liabilities. At present, banks are required to maintain a cash reserve of 15.0 % of their total demand and time liabilities.
Statutory Liquidity Ratio (SLR) refers to that portion of daily total demand and time liabilities of a commercial bank which it has to keep with itself in the form of liquid assets. These liquid assets consist of the following: a.) Excess reserves of the banks b.) Unencumbered Govt. and other approved securities and c.) Current account balances with other banks.
2.) Credit Rationing Through this method the RBI fixes the party wise ceiling of loans and advances on the basis of crop prospects, supply position and price trends. 3.) Fixation of Minimum Lending Rates The RBI also prescribes minimum lending rate in case of advances against all commodities with certain expectations. 4.) Direct Action The reserve Bank takes the following direct actions against the commercial banks: (i) To refuse rediscounting facilities to the banks who do not co-operate with the policies of the RBI; (ii) To refuse loans; (iii) To impose monetary penalties; and (iv) To alter the conditions of rediscounting.
In such an environment, monetary policy had to address itself to the task of neutralizing the inflationary impact of the growing deficit. The Reserve Bank had to resort to direct instruments of monetary control, in particular the cash reserve ratio. This ratio was used to neutralize the financial impact of the Governments budgetary operations rather than as an independent monetary instrument.
In consonance with the medium-term objectives of financial sector reform, the SLR was brought down from its peak level of 38.50/0 in April 1992 to 250/0 of net demand and time liabilities (NDTL) in October 1997. Moreover, there were sharp cuts in the cash reserve ratio (CRR), progressively to 100/0 in January 1997 from 150/0 in 1991.4 The Reserve Banks refinance facility was also rationalized. The sector-specific refinance facilities were de-emphasized and simultaneously a general refinance window was opened in April 1997. Open market operations (OMOs) have gained considerable momentum as the Reserve Bank now responds more flexibly to market yields when drawing up its price list. It also conducts repo and reverse repo transactions in order to ensure a reasonable corridor for money market rates of interest. The interest rate structure was rationalized. Banks are now free to determine their domestic term deposit rates and prime lending rates (PLRs), except for certain categories of export credit and small loans below Rs 0.2 million. In addition, all money market rates are also free. The most significant development in this area has, however, been the reactivation of the bank rate by linking it to all other rates including the Reserve Banks refinance rate.
CONCLUDING REMARKS
We can conclude by saying that the Reserve Bank of India has played an important role in the implementation of reforms by maintaining price and financial stability and by contributing to building a robust external sector during a time of great flux. Indian economy has recovered from a major deficit in 1990s (reform period) and is growing stronger day by day. Also, through liberalization and globalization coming in the country, there are many significant changes in the banking sector too, and the RBI has dealt with it quite nicely. RBI has not only done an fantastic job in monetary management, but has also helped improve the agricultural and rural sector of the country, also it has helped improve the industrial sector of the country, by providing them easy loans facility etc, and has undoubtedly raised the standards of the banking sector of the country to newer heights. The Indian economy has been through a lot of tough times, handled the situations of deflation as well as inflation and one can say that it will perform well in any challenge that is lying ahead in its path because of the excellent monetary conditions and an equally good functioning central bank of the nation which will help the Govt to take the Indian economy to the global economy as an developed economy in the near future.
GROUP NO. 1
GROUP MEMBERS
1.) Aditya Nagaraja 2.) Ankesh Bhandari 3.) Abhishek Chouhan 4.) Dheeraj Mehta 5.) Rahul Mishra 6.) Mohit Singh 7.) Neeraj Yadav Roll no. 01 Roll no. 04 Roll no. 11 Roll no. 34 Roll no. 38 Roll no. 42 Roll no. 51
SUBMITTED TO:-
Prof. Adigal