Various function of RBI?

Functions: The functions are classified into three heads,viz., A) Traditional functions B) Promotional functions and C) Supervisory functions. lets see the detailed account in these heads., A) Traditional functions 1.Monopoly of currency notes issue 2.Banker to the Government(both the central and state) 3.Agent and advisor to the Government 4.Banker to the bankers 5.Acts as the clearing house of the country 6.Lender of the last resort 7.Custodian of the foreign exchange reserves 8.Maintaining the external value of domestic currency 9.Controller of forex and credit 10.Ensures the internal value of the currency 11.Publishes the Economic statistical data 12.Fight against economic crisis and ensures stability of Indian economy. B) Promotional functions 1.Promotion of banking habit and expansion of banking systems. 2.Provides refinance for export promotion 3.Expansion of the facilities for the provision of the agricultural credit through NABARD 4.Extension of the facilities for the small scale industries 5.Helping the Co-operative sectors. 6.Prescribe the minimum statutory requirement. 7.Innovating the new banking business transactions. C) Supervisory functions 1.Granting license to Banks. 2.Inspects and makes enquiry or determine position in respect of matters under various sections of RBI and Banking regulations 3.Implements Deposit insurance scheme 4.Periodical review of the work of the commercial banks 5.Giving directives to commercial banks 6.Control the non-banking finance corporation 7.Ensuring the health of financial system through on-site and off-site verification. These are all the functions which are protective to the Indian Economy, that's why RBI is considered as the head of all banks.

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The functions of the Reserve Bank of India are as follows:(1) Monopoly of note issue: The RBI has the sole right of note issue. All currency notes except one rupee note and coins are issued by the Issue Department of the central bank. The RBI follows the minimum reserves system under which the bank has to maintain a minimum reserve of Rs.200 crores of which a minimum of Rs.115 crores in gold and bullion and the rest in foreign securities. This function helps the Central Bank to control money supply in the economy. (2) Banks to the Government: The RBI is the Banker's agent and adviser to the government. It accepts deposits and make payments on behalf of the Government. Issue of loans, management of public debt, sale of treasury bills are undertaken by the bank. It helps the government in ensuring better co-ordination of monetary and fiscal policies. It provides short term loans namely "ways and means advances" to the Central Government and State Government. These loans have to be rapid within a period of 3 months. It represents the government in various international organizations like IMF, World Bank etc. It sends its official as representative of the government for international seminars and conferences. All important policy decision are taken by the government in consultation with the RBI. It advises the government on important matters like agricultural credit, devaluation of rupee, credit policy for the industrial and export sectors etc. (3) Banker's Bank: RBI acts as a banker for all the commercial banks. All scheduled banks come under the direct control of RBI. All commercial as well as schedule bank has to keep a minimum reserve with the RBI. They have to submit weekly reports to RBI about their transactions. By performing 3 functions, the RBI helps the member banks significantly. They are given below such as: (a) It acts as the lender of the last resort. (b) It is the custodian of cash reserves of commercial banks. (c) It clears, transfers the transaction. It acts as the central clearing house. (4) Management of foreign exchange reserves: RBI is the custodian of the foreign exchange reserves of the country. It is the responsibility of the RBI to stabilize external value of rupee and carry out transactions in foreign currencies. The Foreign Exchange Regulation Act (FERA) passed by the government empowered RBI to have full control over management of foreign exchange. (5) Credit control: The central bank uses the quantitative and qualitative tools to control credit. It is one of the principal functions of RBI. It helps the bank to ensure exchange rate stability and price stability. In quantitative credit control, the volume of credit is controlled and in qualitative credit control, the direction of credit is regulated. Bank rate, open market operations and cash reserve ratio are used under the quantitative method. In selective credit control, the weapons used are variation in margin requirements, moral

suasion, rationing of credit, issue of directives etc. At present selective control has been given much importance and it is more suitable for India.

Foreign Exchange Management Act (FEMA)

The Foreign Exchange Management Act(FEMA) was an act passed in the winter session of Parliament in 1999 which replaced Foreign Exchange Regulation Act. This act seeks to make offenses related to foreign exchange civil offenses. It extends to the whole of India. FEMA, which replaced Foreign Exchange Regulation Act(FERA), had become the need of the hour since FERA had become incompatible with the pro-liberalisation policies of the Government of India. FEMA has brought a new management regime of Foreign Exchange consistent with the emerging framework of the World Trade Organisation (WTO). It is another matter that the enactment of FEMA also brought with it the Prevention of Money Laundering Act 2002, which came into effect from 1 July 2005. Unlike other laws where everything is permitted unless specifically prohibited, under this act everything was prohibited unless specifically permitted. Hence the tenor and tone of the Act was very drastic. It required imprisonment even for minor offences. Under FERA a person was presumed guilty unless he proved himself innocent, whereas under other laws a person is presumed innocent unless he is proven guilty.

Clearing (finance)
In banking and finance, clearing denotes all activities from the time a commitment is made for a transaction until it is settled. Clearing is necessary because the speed of trades is much faster than the cycle time for completing the underlying transaction. In its widest sense clearing involves the management of post-trading, pre-settlement credit exposures, to ensure that trades are settled in accordance with market rules, even if a buyer or seller should become insolvent prior to settlement. Processes included in clearing are reporting/monitoring, risk margining, netting of trades to single positions, tax handling, and failure handling. Systemically Important Payment Systems (SIPS) are payment systems which have the characteristic that a failure of these systems could potentially endanger the operation of the whole economy. In general, these are the major payment clearing or Real Time Gross Settlement systems of individual countries, but in the case of Europe, there are certain pan-European payment systems. TARGET2 is a pan-European SIPS dealing with major inter-bank payments.

STEP2, operated by the Euro Banking Association is a major pan-European clearing system for retail payments which has the potential to become a SIPS. The Federal Reserve System system is a SIPS.

Distinguish between Cheque and DD. 1. Meaning

A cheque is an unconditional order directing the banker to pay a certain sum of money only to or to the order of a certain person. A draft is an order to pay money drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand.

2. Facility

The current account and saving account holders get a cheque facility. Draft is issued to anyone even to non-account holders.

3. Purpose

Cheques are used to make payments or to settle transactions. There is no certainty of payment in the case of cheques as they can be dishonoured or payment can be stopped. The main purpose of a draft is to transfer money from one place to another or to guarantee the certainty of payment to the payee.

4. Drawer

In case of cheque, the drawer is the customer of the bank. In case of draft, the drawer is the bank itself.

5. Bank charges

The bank may not charge for issuing the cheque book. The bank charges a nominal fee or commission to issue a draft.

6. Dishonour

Cheques can be dishonoured for various reasons. There is no question of dishonouring of draft.

7. Stopping of payment

In case of cheque, the drawer can ask the bank to stop payment of the cheque even if it is delivered to the payee. In case of draft, the purchaser of the draft can ask the bank to stop payment before the draft is delivered to the payee.

8. Popularity

Cheques are very common and popular mode of payment. Drafts do not enjoy much popularity as compared to cheques.

9. Clearance

In case of cheque, there is a need for clearance. In case of draft, there is no need for clearance.

10. Parties involved

Three parties are involved in cheque transaction viz., (a) Drawer, (b) Drawee, and (c) Payee. Two parties are involved in draft transaction viz., (a) Drawer, and (b) Payee.

Difference between Demand and Fixed Deposit.

Definition of 'Demand Deposit'
An account from which deposited funds can be withdrawn at any time without any notice to the depository institution.

Investopedia explains 'Demand Deposit'

This account allows you to "demand" your money at any time, unlike a term deposit, which cannot be accessed for a predetermined period (the loan's term). Most checking and savings accounts are demand deposits, accessible by the account holder at any time.

Fixed Deposit
Fixed Deposit Meaning: In deposit terminology, the term Fixed Deposit refers to a savings account or certificate of deposit that pays a fixed rate of interest until a given maturity date. Funds placed in a Fixed Deposit usually cannot be withdrawn prior to maturity or they can perhaps only be withdrawn with advanced notice and/or by having a penalty assessed.
Difference between ATM, Debit and Credit card. A debit card allows purchases without writing a check on your checking account. These are usually accepted anywhere Visa or Mastercard are accepted. The debit card can also function as an ATM card. An ATM card only allows transactions at the bank's ATM or though the bank's ATM network. It can not be used to make purchases at a store or through on-line merchants.

ATM cards you can use to get money from an ATM. Debit cards allow you to make purchases at stores that deduct the money immediately from your bank account. You can also use it to get money out of the ATM. Credit cards allow you to make purchases based on credit. You have to pay the credit card company back every month in installments.