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R.B.

I ACT 1934

INTRODUCTION
BANKING LEGISLATION

The failure of some Indian banks in the earlier part of the 20th century 87 banks during 1913-1917 and another 373 banks during 1922-1932, completely shattered public confidence in banks.
The RBI Act was passed in 1934 for performing the role of a central bank, and banking regulation Act was passed in 1949 for regulation of banking in India, in the interest of depositors, shareholders, stockholders and confidence of the public at large as well as for the smooth functioning of the monetary and financial system.

RBIs CONSTITUTION
The RBI Was established on April 1, 1935 under the RBI Act of 1934. Originally, it was a shareholder bank which was taken over by the Central Government under the Reserve Bank Act, 1948. It had a paid-up capital of Rs.5 crores. There have been 78 amending acts, ordinances, regulations and adaptation orders till 12th June, 2006.

Initially it was located in Kolkata. It moved to Mumbai in 1937. Initially it was privately owned. The govt. had a nominal value of shares of INR 2,20,000. later on in 1949, the bank was nationalised and is fully owned by the Govt. of India.
The RBI Act consists of five chapters and five schedules. A brief outlines of these chapters are discussed followed by a summary of main provisions of the Act.

Chapter I : Preliminary: The act may be called the RBI Act, 1934 and extends to the whole of India. It gives a number of definitions including that of the Bank, Bank for International settlement as well as Export-Import Bank, National Housing Bank, Small Industries Development Bank of India, Scheduled Bank, State Financial corporation, State bank, Cooperative bank etc.
Chapter II : Incorporation, Capital, management and Business: It encompasses the establishment and incorporation of the bank, provisions regarding share capital, offices, branches and agencies as well as composition, function and meetings of its central board, local boards, as well as terms like disqualification removal, etc. of directors. Chapter III : Central Banking functions: This Chapter outline banks obligations and right to transact government business, right to issue bank notes, their denomination, form as well as reissue, recovery and issue of special bank notes. The assets and liabilities of issue department, cash reserve ratios of scheduled banks, publication of consolidated statement by bank,

Chapter IIIA : information:

Collection

and

furnishing

of

credit

Chapter IIIB : Provisions relating to non-banking institutions receiving deposits and financial institutions: Chapter IIIC : Prohibition of acceptance of deposits by unincorporated bodies: Chapter IIID : Regulation of transactions in derivatives, money market instruments or securities: Chapter IV : General Provisions This chapter gives general provisions regarding contribution of central government to reserve funds, national, rural, industrial and housing credit, appointment, powers and duties of auditors, exemption of banks from income tax and super tax, delegation of powers, liquidation of the bank etc.

Chapter V :Penalties This chapter lays down penalties for any person, directors auditor and company whoever makes a wrong statement willfully, whether in any application, declaration, return, advertisement, book, account, document, etc. Any default in complying with regulation of this act is also punishable

SCHEDULES
The Act also has five schedules, namelyThe first schedule, which specifies areas where local boards are to be constituted. The second schedule which lays down provisions for scheduled banks. The third, fourth and fifth schedules have been repealed.

STRUCTURE OF RBI
This Act empowers the Union Government, in consultation with the Governor of the RBI, to issue such directions to RBI as considered necessary in public interest. The Governor and four Deputy Governors of RBI are appointed by the Union Government. The control of the RBI vests with the Central Board of Directors, that comprises of the Governor, four Deputy Governors & 15 Directors nominated by the Union Government. The RBIs internal management is based on functional specialization and coordination amongst about 20 departments, with headquarter at Mumbai, which is the nancial capital of the country.

RBIs OBJECTIVES
PREAMBLE: The Preamble of the Reserve Bank of India describes the basic objectives of the Reserve Bank as "to regulate the issue of Bank Notes and 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."

MAIN OBJECTIVES OF RBI


To maintain monetary. financial stability. To maintain financial stability. To maintain stable payment system . To ensure credit allocation . To ensure price stability. To promote the development of financial market .

FUNCTIONS OF RBI

NOTE ISSUING AGENCY


The RBI has been entrusted with the role of issuing the notes and managing the currency by the preamble of the RBI Act, 1934. RBI issues notes in the denomination of INR 2, 5, 10, 50, 100, 500, and INR 1000 & the GOI issues one rupee coins and one rupee notes but they are put into circulation only through the RBI.

Currency management involves efforts to achieve self-sufficiency in the production of currency notes and coins with a judicious denomination mix etc. The RBI has 17 Issue Offices and about 4040 Currency Chests(RBI has 2800, Nationalized Banks have 800,Treasuries have 420 & Private Sector Banks have 20) Bank notes are printed at four notes presses, of which the currency Notes Press, Nasik, and Bank Note Press, Dewas, are owned by the central govt. and the presses at Mysore and Salboni are owned by the Bharatiya Reserve Bank Note Mudran Limited, a wholly-owned subsidiary of the RBI.

BANKER TO THE GOVERNMENT


The RBI being the apex monitory body has to work as an agent of the central and state governments. It performs various banking function such as to accept deposits, taxes and make payments on behalf of the government without taking any interest. It works as a representative of the government even at the international level. It maintains government accounts, provides financial advice to the government. It manages government public debts and maintains foreign exchange reserves on behalf of the government. It provides overdraft facility to the government when it faces financial crunch.

Bankers Bank
RBI act as a bankers bank Hold some of the cash reserve of banks Lends funds for short periods Provides centralized cleaning and quick

remittance facilities

Regulation & supervision


RBI is the regulator and supervisor of banks RBI also regulates NBFC & significant part of the financial markets Protect the interest of stakeholder Issue license for new bank or new branch Approve or force amalgamation or merger of two banks

DEVELOPMENT OF FINANCIAL SYSTEM


RBI has created specialized financial institutions for Industrial Finance
1. Industrial Development Bank of India(IDBI) in 1964 2. Small Industries Development Bank of India(SIDBI) in 1964

Agricultural Credit
National Bank for Agricultural & Rural Development (NABARD) in 1981

Export-Import Finance
Export-Import Bank of India (EXIM) in 1981

Insurance
Deposit Insurance Corporation of India which later became Deposit Insurance and Credit Guarantee Corporation of India (DICGC)

EXCHANGE CONTROL
The utmost duty of RBI is to maintain the stability of Indian Rupees. The Foreign Exchange market in the country is also regulated by RBI. RBI performs the following tasks1. It administers foreign exchange control through its Exchange Control Department. 2. It manages the exchange rate between the Indian Rupee & Foreign Currencies by selling & buying foreign exchange from Authorized Dealers (AD). 3. It manages foreign exchange reserves of the country and maintains reserves in Gold & Foreign Securities.

MONETARY CONTROL
The RBI controls the overall money supply in the economy. Basically, the RBI uses its monetary policy for controlling inflationary and deflationary situations in the economy by using one or more tools of monetary control.

TOOLS OF MONETARY CONTROL


CASH RESERVE RATIO(CRR) STATUTORY LIQUIDITY RATIO(SLR) BANK RATE OPEN MARKET OPERATIONS REPO RATE AND REVERSE REPO RATE SELECTIVE CREDIT CONTROL

CONCLUSION
The RBI has done commendable job as a monetary authority and regulator of the financial system. It has adopted the best international practices in the dissemination of information and rational of policies.

It has adopted a consultative and participative approach to introduce changes.


The RBI has managed foreign exchange resources effectively. The current level of foreign exchange reserves is enough and adequate to meet the liabilities.

THANK YOU !!

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