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SECOND YEAR BACHELOR OF MANAGEMENT STUDIES

SUB:

BUSINESS ASPECTS IN BANKING AND INSURANCE. Chapter:2.Reserve bank.

> I. What is a Reserve bank ? > A Reserve bank is the bank which stands as the lender of money, issues notes,supervises,controls and regulates the activities if the banking system and acts as a banker to the government.
> Reserve bank acts as the head of the banking institution. > Reserve bank acts as an undisputed leader of the money market. > The Reserve bank is the apex institution of the monetary and banking structure of the country > It is an institution that is charged with the responsibility of managing the expansion and contraction of the volume of credit. > Reserve bank is a bankers bank. > Reserve bank works in the interest of the nation.

> II).Role of Reserve bank of India. > The reserve bank of India during its working of more than six decades, efforts have been made to touch the lives of people and nation. > The following are the major achievements of the reserve bank of India. > The reserve bank of India has adopted appropriate monetary policy most suited to the requirements of Indian trade, commerce and agriculture.
> Issuing of notes is an important function of the RBI which it has performed in the most successful manner. > The RBI has always been a banker to the government.RBI has played an important role in managing public debts and government reserves. > The reserve bank of India has achieved mainly by expanding and contracting the volume of credits to the requirements of the economy

> The central bank has in capacity as the main advisor to the government in monetary matters.
> The reserve bank of India has been successful in arranging the public debt as the government banker. > The RBI is vested with wide powers to grant loans and advances to the banking

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companies in terms of emergency.

> III).Functions of the reserve bank of India:


> The reserve bank of India performs the following functions:

> 1.Traditional functions:


> Regulation of currency:

> The reserve bank of India enjoys the monopoly of note issue in the country.
> The RBI occupies a strategic role in controlling the economy of the country.

> Bankers bank: > The reserve bank acts as a banker to other banks.
> All other banks are in control of the RBI. > The RBI formulates rules for the banks.

> Banker to the government: > The reserve bank of India acts as the banker to the central and state government.
> The bank manages public debt and helps in flotation of new loans. > It acts as the advisor to the government on banking and financial matters.

> Control of credit: > Credit control is an important function of reserve bank.
> The reserve bank needs to control the credit operations. > The object of credit control is to maintain price stability. > The RBI has been vested with the power to influence the volume of credit by banks in India.

> Custodian of foreign reserves: > As a custodian of foreign exchange the reserve bank of India maintains the external value of rupee.
> It also manages exchange control and acts as an agent of the government in respect of Indias membership of the international monetary fund.

> 2.Promotional functions: > In addition to the traditional functions, the reserve Bank of India has been entrusted with the responsibilities of the
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following promotional functions. > Provision of agricultural credit: > The RBI has to play a predominant role in the field of agricultural credit.
> It is entrusted with the business of financing of agriculture and to study the problems of rural credit. > Regional rural banks were set up to provide credit facilities to rural marginal farmers.

> Industrial finance: > The RBI has helped a lot in setting up special financial institutions for financing industries in the country. > Training facilities in banking: > The RBI has set up bankers training college for training of the supervisory staff of the commercial banks. > IV).Money creator: > The monetary policy means a regulatory policy of the RBI whereby the RBI maintains its control over the supply of money for realization of general economic goals.
> Monetary policy is a policy conceived, initiated and implemented by the central monetary authority of RBI. > The objectives of the monetary policy in India has been in India has been to accelerate economic development. > The importance of this monetary policy is controlled expansion of bank credit and money supply. > Monetary policy plays a crucial role in molding the economic character of the country. > The monetary policy has been used to activise the growth process and create favorable condition for economic development.

> V).Credit regulator: > Credit creation is one of the most important functions of RBI.
> In India the banks have to maintain 25% as SLR as per the RBI guidelines. > The credit creation depends upon the desire of the people to hold the cash depending upon their liquidity preference. > The credit creation depends upon the cash reserve ratio. > The RBI has powers to influence the volume of credit. > The creation of credit also depends upon the business conditions of the country

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> VI).Supervision of banking sector: > The RBI has powers to supervise and control commercial and cooperative banks.
> The RBI has powers to issue licenses to for new banks and branches. > The RBI has powers to conduct investigations from time to time. > The RBI has also to control the appointment, reappointment and termination of the chairman and CEO of banks.

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