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Introduction of RBI

Reserve Bank of India is also known as India's Central Bank. It was


established on 1st April 1935. Although the bank was initially owned privately, it has
been taken up the Government of India ever since, it was nationalized. The bank has
been vested with immense responsibility of reviewing and reconstructing the
economic stability of the country by formulating economic policies and ensuring a
proper exchange of currency. In this regard, the Reserve Bank of India is also known
as the banker of banks The Central Office of the Reserve Bank was initially
established in Calcutta but was permanently moved to Mumbai in 1937. The Central
Office is where the Governor sits and where policies are formulated.
The Preamble of the Reserve Bank of India describes the basic functions 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."The Preamble of the RBI
speaks about the basic functions of the bank. It deals with the issuing the bank notes
and keeping reserves in order to secure monetary stability in the country. It also aims
at operating and boosting up the currency and credit infrastructure of India.

The origins of the Reserve Bank of India can be traced to 1926, when the Royal
Commission on Indian Currency and Finance also known as the Hilton-Young
Commission recommended the creation of a central bank for India to separate the
control of currency and credit from the Government and to augment banking facilities
throughout the country. The Reserve Bank of India Act of 1934 established the
Reserve Bank and set in motion a series of actions culminating in the start of
operations in 1935. Since then, the Reserve Banks role and functions have undergone
numerous changes, as the nature of the Indian economy and financial sector changed.

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Origins of the Reserve Bank of India

1926: The Royal Commission on Indian Currency and Finance recommended creation
of a central bank for India.
1927: A bill to give effect to the above recommendation was introduced in the
Legislative Assembly, but was later withdrawn due to lack of agreement among
various sections of people.
1933: The White Paper on Indian Constitutional Reforms recommended the creation
of a Reserve Bank. A fresh bill was introduced in the Legislative Assembly.
1934: The Bill was passed and received the Governor Generals assent
1935: The Reserve Bank commenced operations as Indias central bank on April 1 as
a private shareholders bank with a paid up capital of rupees five crore (rupees fifty
million).
1942: The Reserve Bank ceased to be the currency issuing authority of Burma (now
Myanmar).
1947: The Reserve Bank stopped acting as banker to the Government of Burma.
1948: The Reserve Bank stopped rendering central banking services to Pakistan.
1949: The Government of India nationalised the Reserve Bank under the Reserve
Bank (Transfer of Public Ownership) Act

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History of Reserve Bank of India

The central bank was founded in 1935 to respond to economic troubles after the First World
War. The Reserve Bank of India was set up on the recommendations of the Hilton
Young Commission.The commission submitted its report in the year 1926, though the bank was
not set up for another nine years. The Preamble of the Reserve Bank of India describes the basic
functions of the Reserve Bank as to regulate the issue of bank notes, to keep reserves with a view to
securing monetary stability in India and generally to operate the currency and credit system in the best
interests of the country. The Central Office of the Reserve Bank was initially established in Kolkata,
Bengal, but was permanently moved to Mumbai in 1937.The Reserve Bank continued to act as the
central bank for Myanmartill Japanese occupation of Burma and later up to April 1947, though
Burma seceded from the Indian Union in 1937. After partition, the Reserve Bank served as the central
bank for Pakistan until June 1948when the State Bank of Pakistan commenced operations. Though
originally set up as a shareholders bank, the RBI has been fully owned by the government of India
since its nationalization in 1949.Between 1950 and 1960, the Indian government developed a
centrally planned economic policy and focused on the agricultural sector. The administration
nationalized commercial bank sand established, based on the Banking Companies Act, 1949
(later called BankingRegulationAct) a central bank regulation as part of the RBI. Furthermore, the
central bank was ordered to support the economic plan with loans. Between 1969 and 1980 the Indian
government nationalized 20banks. The regulation of the economy and especially the financial sector
was reinforced by the Gandhi administration and their successors in the 1970s and 1980s. The central
bank became the central player and increased its policies for a lot of tasks like interests reserve ratio
and visible deposits.
The measures aimed at bettere conomic development and had a huge effect on the company
policy of the institutes. The banks lent money in selected sectors, like agri-business and small trade
companies.The branch was forced to establish two new offices in the country forevery newly
established office in a town. The oil crises in 1973resulted in increasing inflation, and the RBI
restricted monetary policy to reduce the effects. A lot of committees analyzed the Indian economy
between 1985 and1991. Their results had an effect on the RBI. The Board for Industrial and
Financial Reconstruction, the Indira Gandhi Institute of Development Research and the
Security& Exchange Board of India investigated the national economy as a whole, and the
security and exchange board proposed better methods for more effective markets and the protection
of investor interests.The national economy came down in July 1991 and the Indian rupee was
devalued. The currency lost 18% relative to the US dollar, and the Narsimha Committee advised
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restructuring the financial sector by a temporal reduced reserve ratio as well as the statutory liquidity
ratio. New guidelines were published in 1993 to establish a private banking sector. This turning point
should reinforce the market and was often called neo-liberal The central bank deregulated bank
interests and some sectors of the financial market like the trust and property markets. This first phase
was a success and the central government forced a diversity liberalization to diversify owner
structures in 1998.The National Stock Exchange of India took the trade on in June 1994and the RBI
allowed nationalized banks in July to interact with the capital market to reinforce their capital base.
The central bank founded a subsidiary company the Bharatiya Reserve Bank Note Mudran
Limited in February 1995 to produce banknotes. The Foreign Exchange Management Act
from 1999 came into force in June2000. It should improve the foreign exchange market, international
linvest ments in India and transactions. The RBI promoted the development of the financial market in
the last years, allowed online banking in 2001 and established a new payment system in 2004 -
2005(National Electronic Fund Transfer). The Security Printing &Minting Corporation of
India Ltd., a merger of nine institutions, was founded in 2006 and produces banknotes and
coins.The national economy's growth rate came down to 5.8% in the last quarter of 2008 - 2009 and
the central bank promotes the economic development. In year 2010 reserve bank of India announced
the news symbol of rupee and officially declared it.

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Nationalization of Reserve Bank of India

Initially, the RBI was established as shareholders bank. Its share capital was
Rs. 5 crores, divided into 5 lakh fully paid up share of Rs100 each. Our of this, share
of the nominal value of Rs. 2,20,000 (2200 shares) were allotted to the Central
Government for disposal at par to the Directors of the Central Board of the Bank
seeking to obtain the minimum share qualification. The remaining share capital was
owned by the private individuals. Thus, the control on the policy of the RBI remained
with the Government.The RBI is governed by the Central Board of Directors. The
Governor and two deputy-Governor are appointed by the Government and
other members of the Governing Board are appointed by individual shareholders.In
order to regulate and control monetary and credit policy of the country,the
Government is empowered to supersede the central Board of Directors of the RBI if
the Board fails to discharge its obligations cast upon it by the RBI Act. The demand
for nationalization of RBI was started with the setting up of RBI. It was felt that RBI
should be nationalized in tune with the changing national and international political
and economical scenario. The objective of its nationalization was stated,
To implement the Governments policy that the Bank should function as state-owned
institution and to meet the general desire that control of the government over the
banks activities should be extended to ensure greater co-ordination in the monetary
economic and financial policies. In February, 1947, it was decided to nationalize
RBI. Thus, the RBI was nationalized with the passing of the Reserve Bank of India
(transfer to public ownership) Act in 1948. In terms of the Act, the entire share was
transferred to the central Government on payment of compensation to the
shareholders @ Rs. 118 and 62 paisa per share of Rs.100. Thus since January 1, 1949,
the the reserve bank of India is functioning as a state owned and state controlled
(nationalized) bank. The nationalization of the RBI was also justified by passing of
the Banking Regulation A

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Objectives of RBI

The Preamble to the Reserve Bank of India Act, 1934 spells out the objectives of the
Reserve Bank as: 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.

Prior to the establishment of the Reserve Bank, the Indian financial system was totally
inadequate on account of the inherent weakness of the dual control of currency by the
Central Government and of credit by the Imperial Bank of India.

The Hilton-Young Commission, therefore, recommended that the dichotomy of


functions and division of responsibility for control of currency and credit and the
divergent policies in this respect must be ended by setting-up of a central bank
called the Reserve Bank of India which would regulate the financial policy and
develop banking facilities throughout the country. Hence, the Bank was established
with this primary object in view.

To regulate the financial policy and develop banking facilities throughout the
country.
To know the share of RBI in Indias Economic Development
To study in depth about various structure of RBI
Suggesting corrective measures to negative elements of RBI
Overview of the recent steps taken by RBI in the field of developme
To manage the monetary and credit system of the country.
To stabilizes internal and external value of rupee.
For balanced and systematic development of banking in the country.
For the development of organized money market in the country.
For proper arrangement of agriculture finance.
For proper arrangement of industrial finance.
For proper management of public debts.
To establish monetary relations with other countries of the world and
international financial

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To remain free from political influence and be in successful operation for
maintaining financial stability and credit.

To discharge purely central banking functions in the Indian money market,


such as acting as the note-issuing authority, bankers bank and banker to
Government, and to promote the growth of the economy.

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Organization of the Reserve Bank of India

Central Board of Directors

Governor

Deputy Governors

Executive Directors

Principal Chief General Manager

Chief General Managers

Deputy Governors

Assistant General Managers

Managers

Assistant Managers

Support Staff

Central Board of Directors

The Central Board of Directors is at the top of the Reserve Banks organisational
structure. Appointed by the Government under the provisions of the Reserve Bank of
India Act, 1934, the Central Board has the primary authority and responsibility for the
oversight of the Reserve Bank. It delegates specific functions to the Local Boards and
various committees.The Governor is the Reserve Banks chief executive. The
Governor supervises and directs the affairs and business of the RBI. The management
team also includes Deputy Governors and Executive Directors.

The Central Government nominates fourteen Directors on the Central Board ,


including one Director each from the four Local Boards. The other ten Directors
represent different sectors of the economy, such as, agriculture ,industry, trade, and
professions. All these appointments are made for a period of four years. The

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Government also nominates one Government official as a Director representing the
Government, who is usually the Finance Secretary to the Government of India and
remains on the Board during the pleasure of the Central Government. The Reserve
Bank Governor and a maximum of four Deputy Governors are also ex officio
Directors on the Central Board.

Local boards
The Reserve Bank also has four Local Boards, constituted by the Central Government
under the RBI Act, one each for the Western, Eastern, Northern and Southern areas of
the country, which are located in Mumbai, Kolkata, New Delhi and Chennai. Each of
these Boards has five members appointed by the Central Government for a term of
four years. These Boards represent territoria land economic interests of their
respective areas, and advise the Central Board on matters, such as; issues relating to
local cooperative and indigenous banks.They also perform other functions that the
Central Board may delegate to them.

Offices and Branches


The Reserve Bank has a network of offices and branches through which it discharges
its responsibilities. The units operating in the four metros Mumbai, Kolkata, Delhi
and Chennai are known as offices, while the units located at other cities and towns
are called branches. Currently, the Reserve Bank has its offices, including branches, at
27 locations in India. The offices and larger branches are headed by a senior officer in
the rank of Chief General Manager, designated as Regional Director while smaller
branches are headed by a senior officer in the rank of General Manager.

Central Office Departments

Over the last 75 years, as the functions of the Reserve Bank kept evolving, the work
areas were allocated among various departments. At times, the changing role of the
Reserve Bank necessitated closing down of some department and creation of new
departments. Currently, the Banks Central Office, located at Mumbai, has twenty-
seven departments. Below departments frame policies in their respective work areas.
They are headed by senior officers in the rank of Chief General Manager.

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Central Office Departments

Markets
Department of External Investments and Operations
Financial Markets Department
Financial Stability Unit
Internal Debt Management Department
Monetary Policy Department
Regulation and Supervision
Department of Banking Operations and Development
Department of Banking Supervision
Department of Non-Banking Supervision
Foreign Exchange Department
Rural Planning and Credit Department
Urban Banks Department
Research
Department of Economic Analysis and Policy
Department of Statistics and Information Management
Services
Customer Service Department
Department of Currency Management
Department of Government and Bank Accounts
Department of Payment and Settlement Systems
Support
Department of Administration and Personnel Management
Department of Communication
Department of Expenditure and Budgetary Control
Department of Information Technology
Human Resources Development Department
Inspection Department
Legal Department
Premises Department
Rajbhasha Department

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Secretarys Department

The Central Board has primary authority for the oversight of RBI. It delegates specific
functions through its committees, boards and sub-committees.

Board for Financial Supervision (BFS)


In terms of the regulations formulated by the Central Board under Section 58of the
RBI Act, the Board for Financial Supervision (BFS) was constituted in November
1994, as a committee of the Central Board, to undertake integrated supervision of
different sectors of the financial system. Entities in this sector include banks, financial
institutions and non-banking financial companies
(including Primary Dealers). The Reserve Bank Governor is the Chairman of the BFS
and the Deputy Governors are the ex officio members. One Deputy Governor, usually
the Deputy Governor in-charge of banking regulation and supervision, is nominated
as the Vice-Chairperson and four directors from the Reserve Banks Central Board are
nominated as members of the Board by the Governor.The Board is required to meet
normally once a month. It deliberates onvarious regulatory and supervisory policy
issues, including the findings of on-site supervision and off-site surveillance carried
out by the supervisory departments of the Reserve Bank and gives directions for
policy formulation.The Board thus plays a critical role in the effective discharge of
the Reserve Banks regulatory and supervisory responsibilities.

Audit Sub-Committee
The BFS has constituted an Audit Sub-Committee under the BFS Regulations to assist
the Board in improving the quality of the statutory audit and internal audit in banks
and financial institutions. The Deputy Governor in charge of regulation and
supervision heads the sub-committee and two Directors of the Central Board are its
members.

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Board for Regulation and Supervision of Payment and Settlement Systems
(BPSS)
The Board for Regulation and Supervision of Payment and Settlement Systems
provides an oversight and direction for policy initiatives on payment and settlement
systems within the country. The Reserve Bank Governor is the Chairman of the
BPSS, while two Deputy Governors, three Directors of the Central Board and some
permanent invitees with domain expertise are its members.

Staff Strength
As of June 30, 2009, the Reserve Bank had a total staff strength of 20,572.Nearly
46% of the employees were in the officer grade, 19% in the clerical cadre and the
remaining 35% were sub staff. While 17,351 staff members were attached to Regional
Offices, 3,221 were attached to various Central Office departments.

Training and Development


The Reserve Bank attaches utmost importance to the development of human capital
and skill upgradation in the Indian financial sector. For this purpose, it has, since long,
put in place several institutional measures for ongoing training and development of
the staff of the banking industry as well as its own staff.

Training Establishments
The Reserve Bank currently has two training colleges and four zonal training centres
and is also setting up an advanced learning centre.The Reserve Bank Staff College
(originally known as Staff Training College), setup in Chennai in 1963, offers
residential training programmes, primarily to its junior and middle-level officers as
well as to officers of other central banks, in various areas. The programmes offered
can be placed in four broad categories: Broad Spectrum, Functional, Information
Technology and Human Resources Management.The College of Agricultural Banking
set up in Pune in 1969, focuses on training the senior and middle level officers of
rural and co-operative credit sectors. In recent years, it has diversified and expanded
the training coverage into areas relating to non-banking financial companies, human
resource management and information technology.Both these colleges together
conduct nearly 300 training programmes every year, imparting training to over 7,500
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staff. The Reserve Bank is also in the process of setting up the Centre for Advanced
Financial Learning (CAFL)
replacing the Bankers Training College, Mumbai. In addition, the Reserve Bank also
has four Zonal Training Centres (ZTCs), in Chennai, Kolkata, Mumbai (Belapur) and
New Delhi, primarily for training its clerical and sub-staff. However, of late, the
facilities at the ZTCs are also being leveraged for training the junior officers of the
Reserve Bank.

Academic Institutions
The Reserve Bank has also set up autonomous institutions, such as, National Institute
of Bank Management (NIBM), Pune; Indira Gandhi Institute for Development
Research (IGIDR), Mumbai; and the Institute for Development and Research in
Banking Technology (IDRBT), Hyderabad. National Institute of Bank Management
(NIBM) was established as an autonomous apex institution with a mandate of playing
a pro-active role of a think-tank of the banking system. The Institute is engaged in
research (policy and operations), education and training of senior bankers and
development finance administrators, and consultancy to the banking and financial
sectors. Publication of books and journals is also integral to its objectives.
International Monetary Fund (IMF), in collaboration with Australian Government
Overseas Aid Programme (AUS-AID) and the Reserve Bank, has set-up its seventh
international centre, the Joint India-IMF Training Programme (ITP) in NIBM for
South Asia and Eastern Africa regions.

The Indira Gandhi Institute of Development Research (IGIDR) is an advanced


research institute for carrying out research on development issues. Starting as a purely
research institution, it quickly grew into a full-fledged teaching cum research
organisation when in 1990 it launched a Ph.D. programme in the field of development
studies. The objective of the Ph.D. programme is to produce analysts with diverse
disciplinary background who can address issues of economics, energy and
environment policies. In 1995 an M. Phil programme was also started. The institute is
fully funded by the Reserve Bank.

IDRBT was established in 1996 as an Autonomous Centre for Development and


Research in Banking Technology.While addressing the immediate concerns of the
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banking sector, research at the Institute is focused towards anticipating the future
needs and requirements of the sector and developing technologies to address them.
The current focal areas of research in the Institute are: Financial Networks and
Applications, Electronic Payments and Settlement Systems, Security Technologies for
the Financial Sector, Technology Based Education, Training and Development,
Financial Information Systems and Business Intelligence. The Institute is also actively
involved in the development of various standards and systems for banking
technology, in coordination with the Reserve Bank of India, Indian Banks
Association, Ministry of Communication and Information Technology, Government
of India, and the various high-level committees constituted at the industry and
national levels.

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Functions of RBI

Functions Of RBI

Traditional Supervisory Promotional


Function Function Function

1.Traditional Functions
2.Supervisory Function
3.Promotional Functions

I. Banking /Tradional/Monetary/Function

1. Note Issue:

The Reserve Bank has the monopoly of note issue in the country. It has the sole right
to issue currency notes of all denominations except one-rupee notes. One-rupee notes
are issued by the Ministry of Finance of the Government of India. The Reserve Bank
acts as the only source of legal tender because even the one-rupee notes are circulated
through it. The Reserve Bank has a
separate Issue Department, which is
entrusted with the job of issuing
currency notes. The Reserve Bank has
adopted minimum reserve system of
note issue. Since 1957, it maintains
gold and foreign exchange reserves of

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Rs. 200 crore, of which at least Rs. 115 crore should be in gold.

2. Banker to Government: The second important function of the Reserve Bank of


India is to act as Government banker, agent and adviser. The Reserve Bank is agent of
Central Government and of all State Governments in India excepting that of Jammu
and Kashmir.
The Reserve Bank has the obligation to transact Government business, via to keep the
cash balances as deposits free of interest, to receive and to make payments on behalf
of the Government and to carry out their exchange remittances and other banking
operations.

The Reserve Bank of India helps the Governmentboth the Union and the States to
float new loans and to manage public debt. The Bank makes ways and means
advances to the Governments for 90 days. It makes loans and advances to the States
and local authorities. It acts as adviser to the Government on all monetary and
banking matters.

3. Bankers Bank and Lender of the Last Resort: The Reserve Bank of India acts
as the bankers bank. According to the provisions of the Banking Companies Act of
1949, every scheduled bank was required to maintain with the Reserve Bank a cash
balance equivalent to 5% of its demand liabilities and 2 percent of its time liabilities
in India.

By an amendment of 1962, the distinction between demand and time liabilities was
abolished and banks have been asked to keep cash reserves equal to 3 percent of their
aggregate deposit liabilities. The minimum cash requirements can be changed by the
Reserve Bank of India.

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 bankers bank but also the lender of the last

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4. Controller of Credit: In modern times, bank credit has become the most
important source of money in the country, relegating coins and currency notes to a
minor position. As Controller of credit, central bank attemps to influence and control
the volume of bank credit and also to stabilize business condition in the country.

Price Stability is essential for money supply in accordance with the changing
requirements of the economy.

The Reserve Bank makes extensive use of various quantitative and qualitative
techniques to effectively control and regulate credit in the country.

OBJECTIVE OF CREDIT CONTROL


The central bank makes efforts to control the expansion or contraction of credit
in order to keep it at the required level with a view to achieving the following ends.1.
To save Gold Reserves: The central bank adopts various measures of credit control to
safe guard the gold reserves against internal and external drains.2. To achieve
stability in the Price level: Frequently changes in prices adversely affect the
economy. Inflationary and deflationary trends need to be prevented. This can be
achieved by adopting a judicious of credit control.3. To achieve stability in the
Foreign Exchange Rate: Another objective of credit control is to achieve the stability
of foreign exchange rate. If the foreign exchange rate is stabilized, it indicates the
stable economic conditions of the country.4. To meet Business Needs: According
to Burgess, one of the important objectives of credit control is the Adjustment of the

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volume of credit to the volume of Businesscredit is needed to meet the requirements
of trade an industry. So by controlling credit central bank can meet the requirements
of business.

Methods of Credit Control


There are two method of Credit Control:
Quantitative method
1. Bank Rate Policy
2. Open market operations
3. Change in Reserve Ratios
4. Credit Rationing
Qualitative Method
1. Direct Method
2. Moral persuasion
3. Legislation
4. Publicity
5.
Quantitative method
1. Bank Rate Policy:
Bank rate is the rate of interest which is charged by the central bank on rediscounting
the first class bills of exchange and advancing loans against approved securities. This
facility is provided to other banks. It is also known as Discount Rate Policy.

2. Open Markets Operations:


The term Open Market Operations in the wider sense means purchase or sale by a
central bank of any kind of paper in which it deals, like government securiteties or
any other public securities or trade bills ect. In prctices, however the term is applied to
purchase or sale of government securities, short-term as well as long-term, at the
initiative of the central bank, as a deliberate credit policy.

3. Change in Reserve Ratios:


Every commercial bank is required to deposit with the central bank a certain part
of its total deposits. When the central bank wants to expand credit it decreases the

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reserve ratio as required for the commercial banks. And when the central bank wants
to contract credit the reserve ratio requirement is increased.
4. Credit Rationing:
Credit rationing means restrictions placed by the central bank on demands for
accommodation made upon it during times of monetary stringency and declining gold
reserves. This method of controlling credit can be justified only as a measure to meet
exceptional emergencies because it is open to serious abuse.

5. CRR (Cash Reserve Ratio):


Cash reserve Ratio (CRR) is the amount of Cash (liquid cash like gold) that the banks
have to keep with RBI. This Ratio is basically to secure solvency of the bank and to
drain out the excessive money from the banks. If RBI decides to increase the percent
of this, the available amount with the banks comes down and if RBI reduce the CRR
then available amount with Banks increased and they are able to lend more.RBI has
reduced this ratio three times and reduced it from 9 % to 5.5% in last one month or
so.6.

Repo Rate:
Repo rate is the rate at which our banks borrow rupees from RBI. This facility is
for short term measure and to fill gaps between demand and supply of money in a
bank .when a bank is short of funds they they borrow from bank at repo
rate and if bank has a surplus fund then the deposit the funds with RBI and earn at
Reverse repo rate .So reverse Repo rate is the rate which is paid by RBI to banks on
Deposit of funds with RBI.A reduction in the repo rate will help banks to get money
at a cheaper rate. When the repo rate increases borrowing from RBI becomes more
expensive.To borrow from RBI bank have to submit liquid bonds /Govt Bonds as
collateral security so this facility is a short term gap filling facility and bank does not
use this facility to Lend more to their customers.present rate is 7.5% and reverse repo
rate is 6%.

SLR((Statutory Liquidity Ratio)


is the amount a commercial bank needs to maintain in the form of cash, or gold or
govt. approved securities (Bonds) before providing credit to its customers. SLR rate is
determined and maintained by the RBI (Reserve Bank of India) in order to control the
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expansion of bank credit.Generally this mandatory ration is complied by investing in
Govt bonds.present rate of SLR is 24 %.But Banks average is27.5 % ,the reason
behind it is that in deficit budgeting Govt landing is more so they borrow money from
banks by selling their bonds tobanks.so banks have invested more than required
percentage and use these excess bonds as collateral security ( over and above SLR )to
avail short term Funds from the RBI at Repo rate.

Qualitative Method
1. Direct Action:
The central bank may take direct action against commercial bank that violates the
rules, orders or advice of the central bank. This punishment is very severe of a
commercial bank.

2. Moral persuasion:
It is another method by which central bank may get credit supply expanded or
contracted. By moral pressure it may prohibit or dissuade commercial banks to deal in
speculative business.

3. Legislation:
The central bank also adopts necessary Legislation for expanding or contracting credit
money in the market.

4. Publicity:
The central bank may resort to massive advertising campaign in the news papers,
magazines and journals depicting the poor economic conditiond of the country
suggesting commercial banks and other financial institutions to control credit either
by expansion or contraction.

5. Custodian of Foreign Reserve: The Reserve Bank of India has the responsibility
to maintain the official rate of exchange. According to the Reserve Bank of India Act
of 1934, the Bank was required to buy and sell at fixed rates any quantity of sterling
in lots of not less than Rs. 10,000.

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The rate of exchange fixed was re. I = sh. 6d. Since 1935 the Bank was able to
maintain the exchange rate fixed at 1sh. 6d though there were periods for extreme
pressure in favour of or against the rupee.

6. National clearing house: The Reserve Bank Acts as the national clearing house
and helps the member banks to settle their mutual indebtedness without physically
transferring cash from place to place.

7. Collection of Data and Publications: The RBI collects statistical data economic
information through its research departments. It complies data on the working of
commercial and co-operative banks, on balance of payments, company and
government finances, security markets, price trends, and credit measures.

After India becomes a member of the International Monetary Fund in 1945, the
Reserve Bank has the responsibility of maintaining fixed exchange rates with all other
member countries of the International Monetary Fund (I.M.F.)

Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as
the custodian of Indias 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.

II. Supervisory Functions:


In addition to its traditional central banking functions, the Reserve Bank has 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 authorised to carry out periodical inspection 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

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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.

RBI has authority to regulate and administer the entire banking and financial system.
Some of its supervisory functions are given below.

1. Granting license to banks: The RBI grants license to banks for carrying its
business. License is also given for opening extension counters, new branches, even to
close down existing branches.

2. Bank Inspection: The RBI grants license to banks working as per the directives
and in a prudent manner without undue risk. In addition to this it can ask for
periodical information from banks on various components of assets and liabilities.

3. Control over NBFIs: The Non-Bank Financial Institutions are not influenced by
the working of a monitory policy. However RBI has a right to issue directives to the
NBFIs from time to time regarding their functioning. Through periodic inspection, it
can control the NBFIs.

4. Implementation of the Deposit Insurance Scheme: The RBI has set up the
Deposit Insurance Guarantee Corporation in order to protect the deposits of small
depositors. All bank deposits below Rs. One lakh are insured with this corporation.
The RBI work to implement the Deposit Insurance Scheme in case of a bank failure.

5. Control over Management: The appointments, reappointment or termination of


appointment of chairman and chief executive officer of a private sector bank is to be
approved by the RBI. The banks approval is also required for the remuneration,
perquisite and post retirement benefits given by a bank to its chairman and chief
executive officers.

22
6. Control over Methods: The RBI exercises strict control over the methods of
operations of the banks to ensure that no improver investment and injudicious
advances made by them.

7. Audit: Banks are required to get their balance sheets and profit and loss accounts
duly audited by the auditors approved by RBI. In the case of SBI, the auditors are
appointed by the RBI.

8. Others: The bank has to obtain the section of the RBI for any voluntary
amalgamations or reconstructions. It also suervises bank in liquidation. The RBI has
played an active role in providing training and banking education to the bank
personnel, with a view to improve their efficiency.

III. Promotional Functions of RBI :


Various promotional functions performed by the Reserve Bank of India are given
below.

1. Promotion of Banking Habit: The Reserve Bank of India helps in mobilizing the
savings of the people for investment. It expanded banking system throughout the
nation by setting up of various institutions like UTI, IDBI, IRCI, NABARD etc.
Thereby it promoted banking habit among the people.

2. Providing Refinance for Exports: The Reserve Bank of India is providing


refinance for export promotion. The Export Credit and Guarantee Corporation
(ECGC) and Export Import Bank were established initially by the Reserve Bank of
India to finance the foreign trade of India. They finance foreign trade in the form of
insurance cover, long-term finance and foreign currency credit. However, they are
now functioning separately.

3. Providing Credit to Agriculture: The Reserve Bank of India makes institutional


arrangements for rural or agricultural finance. For example, the bank has set up
special agricultural credit cells. It has promoted regional rural banks with the help
of commercial banks. It has also promoted NABARD.

23
4. Providing Credit to Small Scale Industrial Unit: Commercial banks lend loans
to small-scale industrial units as per the directives issued by the Reserve Bank of
India time to time. The Reserve Bank of India encourages commercial banks to render
guarantee services also to small-scale industrial sector. The Reserve Bank of India
considers advances given to small-scale sector as priority sector advances. It also
directed commercial banks to open specialized branches to provide adequate financial
and technical assistance to small-scale industrial branches.

5. Providing Indirect finance to Cooperative Sector: The RBI has directed


NABARD to give loans to State Cooperative Banks, which in turn lend loans to
cooperative sector. Hence, the Reserve Bank of India provides indirect finance to
cooperative sector in India.

6. Exercising Control over Monetary and Banking system of the Country: The
Reserve Bank of India is vested with enormous and extensive powers regarding
supervision and control over commercial banks, cooperative banks and also non-
banking institutions receiving deposits. The Banking Regulation Act prescribes
extensive requirements as minimum regarding the paid-up capital, reserves, cash
reserves and liquid assets.

The operation of the bank, the management, amalgamation, reconstruction and


liquidation etc. are thoroughly supervised by the officials of the Reserve Bank of
India. Every scheduled bank is required to furnish to the Reserve Bank a weekly
statement showing the principal items of its liabilities and assets in India.

7. Making Industrial arrangement for Industrial Finance: The Reserve Bank of


India makes institutional arrangement for industrial finance. For instance, it has
brought into existence several development banks such as the Industrial Finance
Corporation of India, the Industrial Development Bank of India, which provide long-
term finance to industries

24
Development Role of RBI in Indian economy

The Reserve Bank is one of the few central banks that has taken an active and
direct role in supporting developmental activities in their country. The Reserve
Banks developmental role includes ensuring credit to productive sectors of the
economy, creating institutions to build financial infrastructure, and expanding access
to affordable financial services. Over the years, its developmental role has extended to
institution building for facilitating the availability of diversified financial services
within the country. The Reserve Bank today also plays an active role in encouraging
efficient customer service throughout the banking industry, as well as extension of
banking service to all, through the thrust on financial inclusion. Towards this goal,
which has evolved over many years, the Reserve Bank has taken various initiatives.

12 Developmental Ro

1.Rural Credit

Given the predominantly agrarian character of the Indian economy, the Reserve
Banks role has been to ensure timely and adequate credit to the agricultural sector at
affordable cost. Section 54 of the RBI Act, 1934 states that the Bank may maintain
expert staff to study various aspects of rural credit and development and in particular,
it may tender expert guidance and assistance to the National Bank (NABARD) and
conduct special studies in such areas as it may consider necessary to do so for
promoting integrated rural development.

Priority Sector Lending


The focus on priority sectors can be traced to the Reserve Banks credit policy for the
year 1967-68, and institution of a scheme of social control over commercial banks in

25
1967 by the Government of India to remove certain deficiencies observed in the
functioning of the banking system, such as, bulk of bank advances directed to large
and medium-scale industries and established business houses. In order to provide
access to credit to the neglected sectors, a target based priority sector lending was
introduced from the year 1974, initially with public sector banks. The scheme was
gradually extended to all commercial banks by 1992. The scope and extent of priority
sectors have undergone several changes since the formalisation of description of the
priority sectors in 1972. The guideline son lending to priority sector were revised with
effect from April 30, 2007. The guiding principle of the revised guidelines on lending
to priority sector has been to ensure adequate flow of bank credit to those sectors of
the society/ economy that impact large segments of the population and weaker
sections, and to the sectors which are employment-intensive, such as, agriculture and
small enterprises. The broad categories of advances under priority sector now include
agriculture, micro and small enterprises sector, microcredit, education and housing.

The domestic scheduled commercial banks, both in the public and private sector,
having shortfall in lending to priority sector and/or agricultural lending and/or weaker
section lending targets, are required to deposit in Rural Infrastructure Development
Fund (RIDF) established with NABARD or other Funds set up with other financial
institutions. RIDF was established with NABARD in April 1995 to assist State
Governments / State-owned corporations in quick completion of projects relating to
irrigation, soil conservation, watershed management and other forms of rural
infrastructure (such as, rural roads and bridges, market yards, etc.). Since then, the
RIDF has been extended on a year-to-year basis to presently RIDF XV through
announcements in the Union Budgets. The interest rates charged from State
Governments and payable to banks under the Rural Infrastructure Development Fund
(RIDF) have been brought down over the years in accordance with the reduction of
market interest rates. As a measure of disincentive for non-achievement of
agricultural lending target, effective RIDF-VII, the rate of interest on RIDF deposits
has been linked to the banks performance in lending to agriculture. Accordingly,
while the State Governments are required to pay interest at Bank Rate plus 0.5
percentage points, the rates of interest on deposits vary between Bank Rate and Bank
Rate minus 3 percentage points depending on the individual banks shortfall in
lending to agriculture target of 18 per cent.
26
Lead Bank Scheme
The Reserve Bank introduced the Lead Bank Scheme in 1969. Here designated banks
were made key instruments for local development and were entrusted with the
responsibility of identifying growth centres, assessing deposit potential and credit
gaps and evolving a coordinated approach for credit deployment in each district, in
concert with other banks and other agencies. The Reserve Bank has assigned a Lead
District Manager for each district who acts as a catalytic force for promoting financial
inclusion and smooth working between government and banks.

Special Agricultural Credit Plan


With a view to augmenting the flow of credit to agriculture, Special Agricultural
Credit Plan (SACP) was instituted and has been in operation for quite some time now.
Under the SACP, banks are required to fix self-set targets showing an increase of
about 30 per cent over previous years disbursements on yearly basis (April March).
The public sector banks have been formulating SACP since 1994. The scheme has
been extended to Private Sector banks as well from the year 2005-06.

Kisan Credit Cards:

The Kisan Credit Card (KCC) Scheme was introduced in the year 1998-99 to enable
the farmers to purchase agricultural inputs and draw cash for their production needs.
On revision of the KCC Scheme by NABARD in 2004, the scheme now covers term
credit as well as working capital for agriculture and allied activities and a reasonable
component for consumption needs. Under the scheme, the limits are fixed on the basis

27
of operational land holding, cropping pattern and scales of finance. Seasonal sub-
limits may be fixed at the discretion of the banks. Limits may be fixed taking into
account the entire production credit needs along with ancillary activities relating to
crop production, allied activities and also non-farm short term credit needs
(consumption needs). Limits are valid for three years subject to annual review.
Security, margin and rate of interest are as per RBI guidelines issued from time to
time.

Natural Calamities Relief Measures


In order to provide relief to bank borrowers in times of natural calamities, the Reserve
Bank has issued standing guidelines to banks. The relief measures include, among
other things, rescheduling / conversion of short-term loans into term loans; fresh
loans; relaxed security and margin norms; treatment of converted/rescheduled
agriculture loans as current dues; non-compounding of interest in respect of loans
converted / rescheduled; and moratorium of at least one year.

2. Micro, Small and Medium Enterprises Development

With the enactment of the Micro, Small and Medium Enterprises Development
(MSMED) Act, 2006, the services sector has also been included in the definition of
micro, small and medium enterprises, apart from extending the scope to medium
enterprises. The Act sought to modify the definition of micro, small and medium
enterprises engaged in manufacturing or production and providing or rendering of

28
services. Some of the major measures by RBI/ GOI to improve the credit flow to the
MSE sector are as under:

Collateral Free Loans:


Reserve Bank has issued instructions/ guidelines advising banks to sanction collateral
free loans up to Rs.5 lakh to the MSE borrowers. Further, banks have also been
advised to lend collateral free loans up to Rs.25 lakh, based on good track record and
financial position of the units.

Credit Guarantee Scheme for Small Industries by SIDBI:


The main objective of the Credit Guarantee Scheme (CGS) for MSEs is to make
available bank credit to first generation entrepreneurs for setting up their MSE units
without the hassles of collateral/third party guarantee. The Scheme envisages that the
lender availing guarantee facility would give composite credit so that the borrowers
obtain both term loan and working capital facilities from a single agency. The Trust at
present is providing guarantee to collateral free loans up to Rs. 1 crore under the
scheme.

Specialised MSE Branch in every District:


Public sector banks were advised in August 2005 to operationalise at least one
specialized MSE branch in every district and centre having a cluster of MSE
enterprises. At the end of March 2009, 869 specialised MSE bank branches were
operationalised by banks.
Formulation of Banking Code for MSE Customers:
The Banking Codes and Standards Board of India (BCSBI) has formulated a
voluntary Code of Banks Commitment to Micro and Small Enterprises and has set
minimum standards of banking practices for banks to follow when they are dealing
with MSEs.
Working Group on Rehabilitation/Nursing of Potentially Viable Sick SME
Units:
Detailed guidelines have been issued to banks advising them to evolve Board
approved policies for the MSE sector relating to:
(i) Loan policy governing extension of credit facilities.

29
(ii) Restructuring / Rehabilitation policy for revival of potentially viable sick units /
enterprises.
(iii) Non-discretionary one time settlement scheme for recovery of non-performing
loans.

3.Export Credit
within the overall monetary and credit policy framework. In order to provide
adequate credit to exporters on a priority basis, the Reserve Bank has also prescribed
a minimum proportion of banks adjusted net bank credit to be lent to exporters by
foreign banks. Post liberalisation and deregulation of the financial sector within the
country, it was observed that banking industry has shown tremendous growth in
volume and range of services provided while making significant improvements in
financial viability, profitability and competitiveness. However, banks had not been
reaching and bringing vast segments of the population, especially the underprivileged
sections of society, into the fold of basic banking services to the desired extent. This
prompted the need for the RBI to develop a specific focus towards Financial Inclusion
for inclusive growth. The Reserve Bank established Working Groups in Bihar,
Uttaranchal, Chhattisgarh, Lakshadweep, Himachal Pradesh and Jharkhand between
July 2006 and October 2007 with a view to improving the outreach of banks and their
services, promoting financial inclusion and supporting the development plans of the
State Governments. The reports examined the adequacy of banking services, made
constructive suggestions towards enhancing the outreach of banks and promoting
financial inclusion as well as revitalising RRBs and UCBs in the respective regions.
To improve banking penetration in the North-East, the Reserve Bank of India
established a Committee on Financial Sector Plan (CFSP) for North Eastern Region in
January 2006. The report includes, among other things, suggestions for expanding the
banking outreach, simplification of system and procedures for opening bank accounts,
land collateral substitutes, currency management, funds transfer and payment
facilities and revised human resources incentives in the region. The Report addressed
important issues pertaining to financial inclusion, improving CD ratio, providing
hassle-free credit. The Reserve Bank has also formulated a scheme for setting-up
banking facilities (currency chests, extension of foreign exchange and Government
business facilities) at centres in the North-Eastern region, which are not found to be
30
commercially viable by banks. The State Governments would make available
necessary premises and other infrastructural support. The Reserve Bank, as its
contribution, would bear the one time capital cost and recurring costs for a limited
period of five years.

4.Financial Inclusion

The Reserve Banks approach to customer service focuses on protection of


customers rights, enhancing the quality of customer service, and strengthening the
grievance redressal mechanism in banks and also in the Reserve Bank. The Reserve
Banks initiatives in the field of customer service include the setting up of a Customer
Redressal Cell, creation of a Customer Service Department and the setting up of the
Banking Codes and Standards Board of India (BCSBI), an autonomous body for
promoting adherence to self-imposed codes by banks. In order to strengthen the
institutional mechanism for dispute resolution, the Reserve Bank in 1995 introduced
the Banking Ombudsman (BO) scheme. The BO is a quasi-judicial authority for
resolving disputes between a bank and its customers. At present, there are 15 Banking
Ombudsman offices in the country. The scheme covers grievances of the customers
against
commercial banks, urban cooperative banks and regional rural banks. In 2006, the
RBI introduced a revised BO scheme. Under the revised scheme, the BO and the
attached staff are drawn from the serving employees of the Reserve Bank.The new
scheme is fully funded by the RBI and covers grievances related to credit cards and
activities of the selling agents of banks also. Under the BO scheme, both the
complainant and the bank, if unsatisfied with the decision of the BO, can appeal
against the decisions of the BO to the appellate authority within the Reserve Bank.

31
5.Customer Service

The Reserve Banks approach to customer service focuses on protection of customers


rights, enhancing the quality of customer service, and strengthening the grievance
redressal mechanism in banks and also in the Reserve Bank.The Reserve Banks
initiatives in the field of customer service include the setting up of a Customer
Redressal Cell, creation of a Customer Service Department and the setting up of the
Banking Codes and Standards Board of India (BCSBI), an autonomous body for
promoting adherence to self-imposed codes by banks. In order to strengthen the
institutional mechanism for dispute resolution, the Reserve Bank in 1995 introduced
the Banking Ombudsman (BO) scheme. The BO is a quasi-judicial authority for
resolving disputes between a bank and its customers. At present, there are 15 Banking
Ombudsman offices in the
country. The scheme covers
grievances of the customers
against commercial banks,
urban cooperative banks and
regional rural banks. In 2006,
the RBI introduced a revised
BO scheme. Under the revised
scheme, the BO and the
attached staff are drawn from
the serving employees of the Reserve Bank.The new scheme is fully funded by the
RBI and covers grievances related to credit cards and activities of the selling agents of
banks also. Under the BO scheme, both the complainant and the bank, if unsatisfied
with the decision of the BO, can appeal against the decisions of the BO to the
appellate authority within the Reserve Bank.
A special taskforce was established for Sikkim, which looked at various key
indicators, such as, financial inclusion, branch expansion, business correspondent /
facilitator model, forex facilities, insurance and capital, currency management, funds
transfer and payment, etc. The implementation of the reports recommendations is
monitored through an Action Point Matrix and quarterly progress reports.

32
Significant Contribution of Different Subsidiaries of RBI in
Economic Development of

1.Deposit Insurance and Credit Guarantee Corporation (DICGC)

1. Deposit Insurance
Deposit insurance is a protection provided usually by a government agency to
depositors against risk of loss arising from failure of a bank. It is implemented in
many countries to protect bank depositors and is one of the financial system safety net
components that promote financial stability. Deposit insurance is mandatory which is
paid from the premium collected from banks. Deposite insurance cover is available
only upto afixed maximum amount per depositor.
Apart from deposit insurance, the other safety net components that promote
financial stability and protect the depositors interests are appropriate regulation,
supervision and liquidity support from the Central Bank, lender of last resort facilities
from the Central Bank and resolution of weak banks.

2.Information and background about DICGC


After the crash of the Palai Central Bank Ltd. and the Laxmi Bank Ltd. in 1960, the
Reserve Bank of India and the Central Government were instrumental in enacting the
Deposit Insurance Corporation (DIC) Bill in 1961. The Reserve Bank of India (RBI)
also promoted a public limited company in January 1971
named the Credit Guarantee Corporation of India Ltd. (CGCI) for encouraging
the commercial banks to cater to the credit needs of the neglected sectors. With a view
to integrating the functions of deposit insurance and credit guarantee, the above two
organizations (DIC & CGCI) were merged and the present Deposit Insurance and
Credit Guarantee Corporation (DICGC) came into existence in July 1978.
Consequently, the title of Deposit Insurance Act, 1961 was changed to The Deposit
Insurance and Credit Guarantee Corporation Act, 1961. The DICGC Act applies to
the whole of India.

33
Services provided by DICGC
DICGC was established for providing insurance of deposits and guaranteeing of credit
facilities. At present, DICGC insures each depositor of a registered insured bank upto
a maximum of Rs.1Lakh for all bank deposits, such as saving, fixed, current,
recurring deposits.

The credit guarantee scheme of DICGC is presently not operative as the banks have
opted out of the scheme due to availability of alternative guarantee schemes viz.
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Credit
Guarantee Fund Scheme for Educational Loans (CGSEL), National Credit Guarantee
Trustee Company (NCGTC), micro units development refinance agency (MUDRA),
etc. The last claim settled under Credit Guarantee was for Rs.0.61 crore which was
settled in 2003.

DICGC is a wholly owned undertaking of the RBI. The RBI has invested Rs.50 crore
share capital of DICGC.

3.Sources of funds for DICGC


As DICGC is a wholly owned undertaking of the RBI, it is considered as one of the
Departments of the RBI and staff from RBI is deputed to DICGC on the same pay and
perquisites that the employees of RBI are entitled to. Further, DICGC is permitted to
draw advances from the RBI from time to time for deposit insurance purposes or
credit guarantee purposes. However, DICGC has not availed of this facility till date.

The source of funds of DICGC is its capital, premium receipts from the registered
banks and income arising from the investments made by DICGC.

All registered insured banks are liable to pay to the DICGC deposit insurance
premium at the rate of 10 paise per annum for every deposit of Rs.100 (i.e0.10%p.a)
for the half year ending March and September on the total deposits of the bank as on
the preceding half year.

34
As per the provisions of Section 25 of DICGC Act, 1961, the funds that DICGC does
not require for the time being, for settlement of claims, are invested in Central
Government securities and deposits with the RBI. DICGC has a Treasury which takes
care of the investments and liquidity requirements.

3. Banks covered by DICGC for deposit insurance


Deposit insurance is compulsory for all banks in the country. Therefore, all public
sector banks, private sector banks, local area banks, regional rural banks, small
finance banks, payments banks, branches of foreign banks functioning in India, all
State, Central and Primary cooperative banks (Urban Cooperative Banks) are
registered and insured by the DICGC. Presently, there are around 2,100 odd banks
registered with DICGC.

The deposit insurance scheme is compulsory and all banks need to get registered with
the DICGC and no bank can withdraw from the scheme. However, banks could be de-
registered by DICGC on account of default in payment of premium for three
consecutive periods. However, there is no such instance of de-registration on this
account till date.

The information on de-registered banks is available in the DICGCs website,


www.dicgc.org.in under For depositors > List of de-registered banks. The
deregistration could happen on account of cancellation of banking license or on
account of the bank being migrated to a different type of bank. For Ex:- from Local
Area bank to Small Finance Bank.

4.Settlement of deposit insurance


As on March 31, 2016, the total amount of claims paid by DICGC since inception
were at Rs.50 billion.

As on March 31, 2016, the insured deposits of all the banks in the country stood at
Rs.28,264 billion and the amount in the deposit insurance fund (DIF) stood at Rs.603
billion yielding a Reserve Ratio (RR) (ratio of Deposit Insurance Fund to Insured
Deposits) of 2.13 % which is comparable to the global scenario. The funds in DIF are
35
more than 10 times of the claims paid till now by DICGC since its inception in 1961.
DICGC also conducts periodic actuarial valuation of its liabilities, to ascertain if this
fund is sufficient. It also has a backstop arrangement to borrow from the RBI in a cash
crunch. Further, going by the claims settled in the past, the funds available with
DICGC are sufficient to handle normal rate of bank failures.

Deposits of different banks are insured separately. The insurance cover of Rs.1 lakh
per depositor in the same right same capacity is for each bank separately. Therefore,
even if two banks are closed / deregistered / cancelled on the same date, the same
depositor will be eligible for a maximum insurance cover of Rs.1 lakh each in each
bank.

5.Process of settlement of deposit insurance


The date of deregistration of a bank as an insured bank is the cutoff date which is also
the date of liquidation / cancellation of banks license or the date on which the scheme
of amalgamation / merger / reconstruction comes into force. The claim amount
(including interest) payable to each depositor, after set-off of loans and advances and
clubbing of deposits, in the same capacity and same right, is arrived at, depositor-
wise, as on the cutoff date.

On receipt of an order for liquidation of a bank or a scheme of


amalgamation/reconstruction for a bank approved by the Reserve Bank of India, the
liquidator is appointed by the Registrar of Co-operative Societies of the respective
State in case of Cooperative banks and Reserve Bank of India in case of commercial
banks. On appointment of the liquidator, the DICGC sends detailed guidelines for
compilation of the claim list and copies of the audited balance sheet, profit and loss
accounts of the bank as on the date of cancellation of registration / amalgamation
/reconstruction, etc of the bank are called for, to verify the authenticity of the total
deposits as given in the claim list. The liquidator is required to furnish the main claim
list in the form and manner prescribed in the guidelines within 3 months from the date
of his appointment. He is required to ensure that only eligible deposits are aggregated
for each depositor in the same capacity and same right and clubbed together after
setting-off dues payable to the bank by the depositor. Further, only eligible insured
depositors who are complying with the Know Your Customer (KYC)norms are
36
required to be included in the Main Claim list in accordance with the Guidelines
issued by DICGC.

For certifying the main claim list prepared by the liquidator, a Chartered Accountant
(CA) is appointed by the RBI who is required to check the deposits of the balance
sheet, interest calculation and claim list for clubbing, set-off, KYC, etc and furnish a
certificate with Annexures on admissible and inadmissible claims. Only after receipt
of the certificate from the CA, the main claim is taken up for processing by DICGC.

In the event of a banks liquidation, the liquidator prepares depositor-wise claim list
and submits it to the DICGC for scrutiny and payment. The DICGC pays the money
to the liquidator who is liable to pay to the depositors. In the case of amalgamation /
merger of banks, the amount due to each depositor is paid to the transferee bank.
Therefore, DICGC does not deal directly with the depositors. However, depositors are
free to contact DICGC, in case of any grievance regarding deposit insurance of upto
Rs.1 lakh.

On scrutiny of the main Claim list submitted by the Liquidator and certificate
furnished by the CA, admissible claim amount is arrived at by the DICGC and the
admissible amount is sanctioned and disbursed to the liquidator or the liquidator is
advised to settle the claim through adjustment through liquid funds available with the
bank. On advice from DICGC, the liquidator pays the admissible amount to the
depositors.

During processing of main claims, DICGC may reject some claims due to bin
adequate KYC verification by liquidator / CA, club certain claims which appear to be
belonging to a same depositor, withhold some claims for want of additional
information such as name of the firm, etc. Further, there are some claims that are
parked as untraceable depositors which are called part B claims and certain claims
refunded by the liquidator as undisbursed amounts. In respect of all the above and
also in respect of additional claims which may have been missed during submission of
main claim, the liquidator could submit supplementary claims with supporting
documents as mentioned in the guidelines to the liquidators which are primarily KYC
documents, legal heir certificate, etc.
37
5.Working of the admissible insurance cover
When a bank goes into liquidation, the DICGC is liable to pay to each depositor
through the liquidator, the admissible amount upto a maximum amount of Rs.1 lakh
after exercising proper set-off of dues in respect of loans, advances and guarantees
due to the bank and clubbing of deposits of the depositor in the same capacity and
same right. The net amount arrived, limited to the insurance cover of Rs.1 lakh, is the
admissible amount due to the depositor from the DICGC.

The DICGC insures all deposits such as savings, fixed, current, recurring, etc. and
interest thereon, except deposits of foreign Governments, deposits of Central/State
Governments, Inter-bank deposits, deposits of the State Land Development Banks
with the State co-operative bank, any amount due on account of and deposit received
outside India, amounts credited to the Depositor Education and Awareness Fund
(DEAF) established by the Reserve Bank of India and any amount, which has been
specifically exempted by the corporation with the previous approval of Reserve Bank
of India. Further, deposits of any entity/individual banned as per the updated list by
the UN Security Council c),deposits in respect of any of the terrorist organizations
whose names have been notified under the Prevention of Terrorism Act, 2002 and
deposits in respect of any of the 29 entities whose names are notified by the office of
the custodian the Special Court, Department of Economic Affairs, Ministry of
finance, Government of India in the Gazette of India Extra Ordinary Part III 4 -No.28
dated 17th June 1997, 273 dated 8thOctober 2001 and 302 dated 20th November 2001,
will not be covered under the deposit insurance

38
NABARD

National Bank for Agriculture and Rural Development (NABARD)


NABARD is set up as an apex Development Bank with amandate for facilitating
credit flow for promotion and development of agriculture, small-scale industries,
cottage and village industries, handicrafts and other rural crafts. It also has the
mandate to support all other allied economic activities in rural areas, promote
integrated and sustainable rural development and secure prosperity of rural areas. In
discharging its role as a facilitator for rural prosperity NABARD is entrusted with
Providing refinance to lending institutions in rural areas.
Bringing about or promoting institutional development and
Evaluating, monitoring and inspecting the client banks

Besides this pivotal role, NABARD also:


Acts as a coordinator in the operations of rural credit institutions
Extends assistance to the government, the Reserve Bank of India and other
organizations in matters relating to rural development
Offers training and research facilities for banks, cooperatives and organizations
working in the field of rural development
Helps the state governments in reaching their targets of providing assistance to
eligible institutions in agriculture and rural development
Acts as regulator for cooperative banks and RRBs

Major Activities
Preparing of Potential Linked Credit Plans for identification of exploitable
potentials under agriculture and other activities available for development through
bank credit.
Refinancing banks for extending loans for investment and production purpose in
rural areas.
Providing loans to State Government/Non Government Organizations
(NGOs)/Panchayati Raj Institutions (PRIs) for developing rural infrastructure.
Supporting credit innovations of Non Government Organizations (NGOs) and
other non-formal agencies.

39
Extending formal banking services to the unreached rural poor by evolving a
supplementary credit delivery strategy in a cost effective manner by promoting
Self Help Groups (SHGs)
Promoting participatory watershed development for enhancing productivity and
profitability of rain fed agriculture in a sustainable manner.
On-site inspection of cooperative banks and Regional Rural Banks (RRBs) and
iff-site surveillance over health of cooperatives and RRBs. (www.nabard.org)

Credit Facilities Offered by NABARD


NABARD also offers various credit facilities like:
Short-term/ Medium term/ Long-term refinance for various types of
production/marketing/ procurement activities at attractive interest rates to various
organizations, societies, Govts etc.
Investment Credit (Medium and Long Term) Refinance with a mission of
Accelerating Private Capital Formation to Promote Sustainable and Equitable
Agriculture and Rural Prosperity with Refinance as Lever
Rural Infrastructure Development Fund (RIDF)
RIDF is a fund to promote the investment in infrastructure for agriculture. State
Governments as well as Panchayat Raj Institutions (PRIs), Non- Governmental
Organisations, Self-Help Groups, etc. are eligible to borrow out of RIDF for their
schemes like ongoing Irrigation, Flood Protection, Watershed Management projects,
rural Road & Bridge projects, Primary and Secondary Schools, Primary Health
Centers, Village Haats, Joint Forest Management, Terminal and Rural
Market/Godowns, Rain Water Harvesting, Watershed development, flood
protection, drainage, Cold Storage, Riverine Fisheries, Fishing Harbour& Jetties,
Mini/Small Hydel Projects in Power Sector, Rural Drinking
Water Supply Schemes, Citizen Information Centres, Modern abottoir,
Seed/Agri./Hori.Farms, etc.
Refinance for Rural Housing Facilities scheme
RRHFS provides Credit to the Individuals, Cooperative Housing Societies, Public
Bodies, Housing Boards/ Housing Development Researcherities/ Improvement,
Trusts, Local Bodies, Voluntary agencies and NGOs, Housing Finance Companies
registered, with NHB for finance extended by them to housing projects in the 'rural'

40
areas only. The finance is provides for Construction of New Houses as well as
Repairs/Renovation of existing houses in rural areas/ Rainwater Harvesting
Structures/ Sanitary Latrines, etc.

Micro Credit Innovation scheme,


Under the MCISNABARD facilitates sustained access to financial services for the
unreached poor in rural areas through various microfinance innovations in a cost
effective and sustainable manner.
NABARD has been designated the Implementing Agency for implementing the
Revival Package in all the states. The Department for Cooperative
Revival and Reforms (DCRR) has been constituted in NABARD for this purpose.
NABARD is providing dedicated manpower at the national, state
and district levels for implementing the Package.
Loans to State Governments for funding equity of Co-operative Credit
Institutions.
NABARD has formulated a Model scheme for issue of Kisan Credit Cards to
farmers, on the basis of their land holdings, for uniform adoption by banks,
so that the farmers may use them to readily purchase agricultural inputs such as seeds,
fertilisers, pesticides, etc. and also draw cash for their production needs. Farmers have
to get in touch with Researcherised banks to use this facility
A Research and Development Fund has been established by the bank with the
objective of acquiring new insights into the problems of agricultural and rural
development through in-depth studies and applied research and trying out
innovative approaches backed up by technical and economic studies. It includes
facilities for training, dissemination of information and promotion of research by
undertaking studies techno-economic and other surveys in the fields of
agriculture, rural banking and rural development. The eligible Institutes for the
fund are Approved research institutions, organizations and other agencies which
are engaged in action-oriented, applied research, Individuals or groups of
individuals would also be extended assistance provided they are sponsored by
suitable organizations which would certify the proper use and accounting of funds,
Private and commercial organizations are not normally eligible for assistance
under the this fund.

41
SWAROJGAR CREDIT CARD SCHEME aims at providing adequate and
timely credit ie. Working capital or block capital or both to small artisans,
handloom weavers, service sector, fishermen, self employed persons, rickshaw
owners, other micro entrepreneures, SHGs,etc from the banking system in a
flexible, hassle free and cost effective manner. Borrowers in urban areas can be
covered under SCC Scheme. Small business covered under priority sector is also
eligible under SCC Scheme. Any scheme/project that is income generating/
employment generating may be covered under the scheme. The facility may also
include a reasonable component for consumption needs. Farm sector activities like
fisheries, dairy, etc. can also be covered under the scheme. Generally such of the
self-employment activities which have regular turn over/income stream on short-
interval basis can be covered under SCC scheme. SCC is a credit delivery mode
and not a purpose. Coverage of SCC will not make a unit ineligible for subsidy.
Banks can issue SCCs to target borrowers of SCC scheme for disbursing credit
under any schemes whether they are covered under subsidy or not.
Farmers' Club Programme is a grassroot level informal forum. Such Clubs are
organised by rural branches of banks with the support and financial
assistance of NABARD for the mutual benefit of the banks concerned and rural
people. The broad functions being to coordinate with banks to ensure
credit flow among its members and forge better bank borrower relationship, interface
with subject matter specialists in the various fields of agriculture and
Allied activities etc., extension personnel of Agriculture Universities, Development
Department sand other related agencies for technical know-how up gradation. Liaison
with Corporate input suppliers to purchase bulk inputs on behalf of members,
organize/facilitate joint activities like value addition,
processing, collective farm produce marketing, etc.; for the benefit of members. They
can also sponsor / organize SHGs, undertake socio-economic developmental activities
like community works, education, health, environment and natural resource
management etc.
NABARD Consultancy Services (Nab cons) is engaged in providing
consultancy in all spheres of agriculture, rural development and allied areas.
Nab cons leverages on the core competence of the NABARD in the areas of
agricultural and rural development, especially multidisciplinary projects, banking,

42
institutional development, infrastructure, training, etc., internalized for more than two
decades.
Crafts Mart scheme was initiated with the objective of providing the rural
artisans and entrepreneurs access to urban and upcountry markets, products of
Few artisans supported by NABARD under its various promotional programmes are
displayed along with the contact addresses.
Rural Innovation Fund (RIF) is a fund designed to support innovative, risk
friendly, unconventional experiments in Farm, Non-Farm and micro-Finance
sectors that would have the potential to promote livelihood opportunities and
employment in rural areas. The following areas/sectors are as thrust areas for
support from the Fund. Dry land / Rain fed farming, Rainwater harvesting, Energy
from biomass, Crop residues and non-crop bio mass, Distribution and use of water
and energy, Storage devices for agricultural and rural products, Managing
common property resources, Roads, Sanitation and Waste disposal, micro-
Finance, Entrepreneurship/Skill development, micro- Enterprises, Marketing,
Housing, Service sector, Health care and Hygiene.
Water Harvesting Scheme is for the SC / ST Farmers with main objective of the
scheme is to cover SC/ST farmers in providing irrigation facilities to their
homesteads / farmlands. In order to augment the income generating capacity of
these SC/ST farmers suitable local water-harvesting structures are proposed along
with provision for small lifting devices on a nationwide scale. Freshwater an
aquaculture wherever feasible can also be taken up as per the choice of farmers.
Reserve Bank of India (RBI) set up the Agricultural Refinance Corporation (ARC) in
1963 to work as a refinancing agency in providing medium term and long term
agricultural credit to support investment credit needs for agricultural development. In
1975 this institution was renamed as Agriculture Refinance and Development
Corporation (ARDC) with a view to lay emphasize on developmental and
promotional role, besides refinancing activities

Upon its formation in 1982, NABARD took over the functions of the erstwhile
Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of
RBI and Agricultural Refinance and Development Corporation (ARDC)

43
Today, the Department of Refinance (DOR) deals with short term and long term
refinance functions of NABARD which were being addressed by ACD and ARDC
respectively before NABARDs formation.

1. Core Functions of the Department:

DOR mainly deals with:

Short term refinance for production credit activities contributing to food security

Medium term and long-term refinance for investment credit activities for giving a
boost to private capital formation in agriculture Additionally DOR also acts as a
subsidy channelizing agency for various Govt. of India schemes

A. Short-term Refinance

NABARD provides by way of refinance loans and advances repayable on demand or


on the expiry of fixed periods, not exceeding 18 months, to Cooperative Banks,
Regional Rural Banks for production, marketing and procurement activities. The basic
objective of short-term refinance provision is to supplement the resources of banks
and improve credit flow at the ground level. These activities include:

Short-term refinance to State Cooperative Banks and Regional Rural Banks for
seasonal agricultural operations

Short-term refinance to State Co-operative Banks and Regional Rural Banks for
purposes other than seasonal agricultural operations

Short-term refinance to Scheduled Commercial Banks, State Co-operative Banks and


Regional Rural Banks for lending to weavers

B. Long-term/Medium-term Refinance

NABARD provides long-term and medium-term refinance to the following


institutions to supplement their resources for providing adequate credit for supporting
investment activities of farmers and rural artisans etc.

Scheduled Commercial Banks

44
Regional Rural Banks
State Cooperative Banks
District Central Cooperative Banks
State Cooperative Agriculture and Development Banks
Primary Urban Cooperative Banks
Agricultural Development Finance Companies (ADFCs)
NABARD Financial Services Limited (NABFINS)
North Eastern Development Finance Corporation Ltd. ( NEDFI)
Non-Banking Financial Companies (NBFCs)
Any other financial institution approved by RBI

The activities cover both farm sector as well as off-farm sector activities. The tenure
of refinancing is in the range of 18 months to 5 years.

C. Medium-term Conversion

NABARD provides medium term credit limits for conversion of short-term crop
loans advanced for financing seasonal agricultural operations (SAO) to State Co-
operative Banks and Regional Rural Banks for providing relief to the farmers whose
crops are damaged due to natural calamities.

D. Long-term loans to State Government

NABARD provides long-term (LT) loans to State Governments to contribute to the


share capital of cooperative credit institutions. This reimbursement-based support is
intended encourage larger lending programmes by these cooperatives to meet
agricultural credit requirements.

E. Kisan Credit Card

Government of India (GoI) introduced Kisan Credit Card Scheme during 1998-99 to
meet the production credit requirements of the farmers in a timely and hassle-free
manner. The scheme is under implementation in the entire country by the vast
institutional credit framework involving Commercial Banks, Regional Rural Banks,
and Cooperatives. RBI monitors the scheme for Commercial Banks and NABARD for
Regional Rural Banks and Cooperatives.

45
F. Interfacing for GOI Schemes

As the nodal agency for a number of schemes sponsored by the GoI, NABARD
continues to interface between various stakeholders.

Capital Investment Subsidy Schemes:

1. Agricultural Marketing Infrastructure (AMI) Sub Scheme, Ministry of


Agriculture (MOA)

2. Agri-Clinics and Agri-Business Centres, MoA

3. Solar Schemes, Ministry of New and Renewable Energy (MNRE)

4. National Project on Organic Farming

5. Schemes under Animal Husbandry Sector

Interest Subvention Schemes:

1. Interest Subvention Scheme for Crop Loans, GoI

2. Sugar package

3. Handloom Sector Packages

46
2. Broad Achievements of the Department at National Level:

Short Term Refinance:

An amount of Rs.74392.93 crore was disbursed as short-term refinance during the


year 2016-17. Purpose wise and agency wise break up is furnished as under:

Agency Target (in crores) Achieved ( in


crores)

Seasonal Agricultural Operations

State Co-Operative Banks 64717.00 62609.99

Regional Rural Banks 10000.00 10002.39

Public Sector Banks for Primary 283.00 270.81


Agricultural Credit Societies

Total 75000 72883.19

Additional ST-SAO 5000 10581.00

ST (Others) 1200 1509.74

State Co-Operative Banks 1042.00

Regional Rural Banks 455.00

ST Weavers 12.74

47
Long Term Refinance:

An amount of Rs. 53505.51 crores was disbursed under long-term refinance during
the year 2016-17. Agency wise break up is given as under:

Achieved
Target (in ( in
Agency crores) crores)

Commercial Banks 23200.00 25834.00

Regional Rural Banks 11000.00 11369.82

State Co-operative Banks 6400.00 6433.59

State Cooperative Agriculture and Rural Development


Banks (SCARDBs) 3400.00 3398.34

NBFCs/PUCB/ABF(AP)/ NABKISAN/NABFINS 6000.00 6469.76

Total 50000.00 53505.51

48
Non Housing Bank

Preamble of NHB Act, 1987

This is an Act to establish a bank to be known as the National Housing Bank to


operate as a principal agency to promote housing finance institutions both at local and
regional levels and to provide financial and other support to such institutions and for
matters connected therewith or incidental thereto.5 It extends to the whole of India
including the State of Jammu and Kashmir.

Introduction

NHB is an apex level financial institution catering to the needs of housing


sector in the country. It was established on July 9, 1988. It works as a facilitator in
promoting housing finance institutions or providing assistance to other institutions of
such type. NHB has 9 departments which are NHB Residex Cell, Regulation and
Supervision, Refinancing operations, direct finance Operations, Enabling Processes,
Information Technology, Resource Mobilization and Management, Development and
Risk Management, Board and CMD Secretariat. Headquatered in Delhi, the
organization has its office in all the major cities such as Mumbai, Hyderabad,
Bangalore, Chennai, Kolkata, Lucknow, Ahmedabad and Bhopal. With trained
professionals and proficient experts working at different levels, NHB is dedicated in
quest of excellence through modernism, doer work culture and contemporary work
practices assisted by technology intervention.

As per the National Housing Bank Act of 1987, the NHB is expected to control the
housing finance system of the country, eliminating anything that hampers the interest
of depositors or is detrimental to the interest of the housing finance institutions, in
general. It also extends finances to different primary lenders with respect to eligible
housing loans and project loans.The NHB provides loans and financial assistance to
scheduled banks and housing finance institutions or to any authority established by
orunder any Central, State or Provincial Act. Apart from this, NHB has been playing
the promotional role issuing guidelines for participating in the equity of housing
finance companies and guaranteeing the bonds to be issued by the housing finance

49
companies. Besides the lending operations, NHB's dedicated Training Division
conducts regular training programs in areas relating to housing and housing finance
for development of management capabilities of officials working in the financial
sector.

The main objectives of NHB are as follows:

To promote a sound, healthy, viable and cost effective housing finance system to
cater to all segments of the population and to integrate the housing finance system
with the overall financial system.
To promote a network of dedicated housing finance institutions to adequately
serve various regions and different income groups.
To augment resources for the sector and channelize them for housing.
To make housing credit more affordable.
To regulate the activities of housing finance companies based on regulatory and
supervisory authority derived under the Act.
To encourage augmentation of supply of buildable land and also building
materials for housing and to upgrade the housing stock in the country.
To encourage public agencies to emerge as facilitators and suppliers of serviced
land, for housing.

Main Function of NHB

1. Promotion and Development Function-The institution had been set up when


regional and local level housing finance institution were nearly absent and the
banking sector was not willing to do housing finance on any significant level. As a
result the sector was grossly capital deficient and the housing shortage in the country
was growing at an alarming level. There was a need to set up local and regional level
financial institutions for supply of housing credit. The households above the average
income could be well served by an institution which raises resources through the open
market and deliver credit with minimum necessary prudential regulations by the
regulator. For households below the poverty line, the institutional credit will have to
take into account the employment and poverty alleviation programmes having

50
anelement of subsidy. It is the middle group which constitutes nearly half of the total
number of households in the country that needs to be taken care of. NHB is
encouraging the financial institutions to lend to this segment through its refinance
programmes. There has been a sustained effort at creating and supporting new set of
specialised institutions to serve as dedicated centres for housing credit. NHB also
participates in the equity of HFCs. NHB is of the opinion that intervention through
institutional credit can be made more effective by adoption of different approaches to
cater to the needs of different income groups. With the setting up of NHB in 1988,
there has been sustained efforts at creating and supporting new set of specialized
institutions to serve as dedicated centres for housing credit. NHBs role in this regard
can be measured from the fact that from about 90 companies that were acting as
dedicated housing finance institutions when NHB came into existence, there are now
more than 53 such specialized institutions1 spread over the vast span of the country.
NHB has been participating in the equity of the housing finance companies which are
financing for the rural and low cost housing for the weaker section of the society.
NHB has been imparting training to the banking sector and housing finance
companies in particular for developing housing finance skill. It has so far organized
more than 200 such trainings for more than 2000 officials.

2. Regulatory and Supervisory Function- The second most important function of


NHB is the regulatory role assigned to it. This role assumes more importance as the
housing finance system in India enters a secondary phase of development in terms of
integration with the debt and capital markets. The case for regulation also emanates
from the need for credible and stable housing finance system in the country. Without
in any manner against the free market approach, NHB has attempted to put in place an
effective system of responsive regulation. The housing finance system as such is still
developing in the country and thus there needs to be a great amount of stability in
terms of resource development, policy development and institution building. NHB has
come up with guidelines for recognising Housing Finance companies (HFCs) for its
financial assistance, guidelines for financial assistance. Besides it has also issue
dguidelines for prudential norms for income recognition, asset classification etc. NHB
also regulate deposits taking activity of the housing finance companies. In terms of
section 29A of the National Housing Bank Act, 1987 it is necessary for each of the

51
housing finance companies to obtain registration certificate from NHB before
commencement of business of housing finance.

3.Financial Function- The third important role of NHB is to provide financial


assistance to the various banks and housing finance institutions. As an apex refinance
institution, the principal focus is to generate large scale involvement of primary
lending institutions falling in various categories to serve as dedicated outlets for
assistance to the housing sector. It supports housing finance sector by extending
refinance to different lenders in respect of eligible housing loans extended by them to
individual beneficiaries and for project loans extended by them to various
implementing agencies. It also supports by lending directly in respect of projects
undertaken by public housing agencies for housing construction and development of
housing related infrastructure. Other institutions include scheduled banks (both
commercial and cooperative), regional rural banks, specialized housing finance
institutions, Agriculture and Rural Development Banks and the Apex co-operative
housing finance societies. It helps by guaranteeing the repayment of principal and
payment of interest on bonds issued by housing finance companies. Real Estate and
Stock Market fluctuations also are monitored. Finally it acts as a special purpose
vehicle for securitising the housing loan receivable. So the major things under the
financial role that NHB plays are refinance operations, project finance, guarantee and
securitisation.

Future Strategies- It has been estimated that the housing requirements till 2012
in India is around 74 mn units out of which nearly 90% of the total housing units
in both the rural and urban areas are for the poor and low income segment
households. Though the growth of housing finance is about 30% in the last few
years it has not been able to satisfy the requirements of the poor sections of the
society. So the NHB not only needs to develop a new financial architecture but
also policy and regulatory framework for affordable housing on sustainable lines
for the weaker sections of the society. The recent initiatives taken in this direction
include interest subsidy scheme for urban poor, top up loan scheme, emphasis on
public private partnership focusing on housing for poor, JNNURM2 for bringing
appropriate policy and legal reforms for providing affordable housing to poor. So
for all these to materialize synchronization is needed in the working of
Government, Reserve bank of India (RBI) and NHB. Also public agencies,
52
financial institutions and builders need to be incentivizing so that NHB can
achieve the goals that it has embarked on. NHB is also involved in 2 Jawaharlal
Nehru National Urban Renewal Mission, Government of Indiaimplementing housing relief
schemes of the Government of India. NHB also raises resources for the housing
sector towards increasing new housing stock and provides refinance to a large set
of retail lending institutions. These include scheduled commercial banks,
scheduled state cooperative banks, scheduled urban cooperative banks, specialized
housing finance institutions, apex co-operative housing finance societies and
agriculture and rural development banks.
Guaranteeing Bonds of HFCs-Housing Finance companies depend to a great
extent on refinance assistance from NHB. However, the extension of refinance
assistance by NHB is constrained by various factors like NHB's own Net Owned
Fund (NOF), 3HFCs' borrowing power etc. In addition, in the present liberalized
environment, the HFCs prefer to raise resources directly from market in order to
eliminate the cost of intermediation. Besides NHB refinance, HFCs mainly
depend upon term loans from banks and public deposits. Of late, the maturity
profile of public deposits has been shortening leading to asset liability mismatches
for HFCs. One way to overcome this problem is floatation of bonds/debentures
having a longer maturity period of say five to seven years. To attract the investors
at competitively low rates, such bonds/debentures should haven sufficiently high
rating. Many of the HFCs have not been able to float bonds/debentures because of
the lower credit rating from the rating agencies for various reasons including the
inherent mismatch between assets and liabilities. NHB's intervention in this area
was considered critical and accordingly a scheme was introduced to extend
guarantee to the bonds/ debentures to be floated by HFCs meeting certain laid
down criteria. Under the scheme, NHB will provide top ended guarantee relating
to the repayment of principal and interest which will provide necessary credit
enhancement and will enable HFCs to acquire higher credit rating leading to
competitive pricing of these instruments. The salient features of the scheme are as
under:
Scope: The Scheme envisages provision of guarantee by NHB to the investors
regarding repayment of principal and interest during the top end (say last two
years ) irrespective of the repayment schedule fixed by the HFC and the guarantee
shall not exceed 67% of the total amount to be raised and the interest thereof.
53
Terms and Conditions for Guarantee

The HFC desirous of availing the guarantee from NHB has to comply with the
following terms and conditions:

(i) The bond issue shall carry at least a rating of AA- from an approved rating
agency. However, the Bank can consider providing the guarantee in the case of an
instrument being rated 'A subject to the HFC meeting the following requirements:

NOF should be Rs.30 crores or more


Net NPA should be less than 2%
The HFC should have earned profit during the last three years or since its
inception if it is in existence for less than 3 years
The overdue for more than 3 months should not exceed 10% of the aggregate
demand for the year, and
The HFC shall have complied with all the provisions of the Housing Finance
Companies (NHB) Directions, 1989 as amended from time to time and all the
provisions of the Guidelines on prudential norms.

(ii) The maturity of the bonds/debentures should be for a period of five years to begin
with.

(iii) The market should determine the coupon rate.

Exposure Norms: For the purpose of extending guarantee to the HFCs, exposure
limits is fixed by NHB along with the annual refinance limit. The aggregate amount
of the guarantee in a year can be maximum up to the actual amount of the bond to be
floated at a time or the annual refinance limit provided in a particular year, whichever
is less. The overall borrowing including the amount to be mobilized through the
bond/debenture issue should not be more than 7 times the NOF of the company.

Minimum Size of Each Issue: The minimum size for each issue should be Rs.10
crores and subjected to the overall borrowing powers fixed under the Housing Finance
Companies (NHB) Directions, 1989, as amended from time to time.

Security: The HFCs desirous of availing the guarantee has to create a floating charge
on the assets equivalent to 125% of the principal amount in favour of NHB. In case

54
the HFC offers any other security in addition to a floating charge for its existing
borrowing or is in a position to provide further security, the same also to be asked for.
In case of the HFCs, where personal or corporate guarantee has been obtained, the
same should be extended to cover the guarantee for the bonds/debentures.

Guarantee Fee: For extending the guarantee, the HFCs is charged 75 basis points per
year of the amount to be floated as guarantee commission and this is to be payable
upfront.

Creation of Reserves: The HFC has to create appropriate bond/debenture redemption


reserves as may be laid down under the Companies Act, 1956 from time to time.

Returns: The HFC has to furnish such returns/information as laid down from time to
time for the purpose of availing refinance.

4. Training and Capacity Building: Among the multiple responsibilities entrusted to


NHB under Chapter IV4 of the NHB Act, 1987, the development of human resources
in the sector is a major agenda of the Bank. This is sought to be addressed partially
through training programmes, seminars and symposia on matters related to housing
for the officials of the Housing Finance Companies (HFCs), Commercial Banks and
Public Housing Agencies.The growth in the housing sector has resulted in a need for
human resources development and training in the sector. These needs are highly
specialized as mortgage finance is different from extending financial assistance to
other activities .

The last quarter of the 20th Century has been witnessing radical changes in
technology, consumer markets, organisational structure, social values and the world
order at large. Training and learning assume an all-time importance in the scenario of
the swiftly changing environment. Organisation have to become "learning
institutions" whose members endeavor to help the irorganisations to cope with the
dynamics of change in technology, organsiational systems and social values of the
modern world. NHB endeavours seems to address this through, inter alia, conducting
training programmes, seminars and symposia on matters related to housing
Providingrs) design and faculty support to various categories of institutions dealing in
housing and related activities. The training programmes conducted by NHB are on a
wide spectrum of topics and for different targets groups. Orientation programmes are

55
targeted at the entry level employees of the sector whereas, specialized programmes
are designed and conducted for personnel working in specialized areas such as legal,
regulatory and supervisory, risk management, securitization etc. Besides in-house
faculty, experts in the respective fields are also invited to share their experiences with
the participants. Various training methodologies such as class-room sessions, case
studies, informal discussion, management games and interaction amongst the faculty
and participants are used. Thrust is on free exchange of views and participation so as
to learn from each other.

The NHB also provides programme design (course content, study material etc.) and
faculty support to various institutions for conducting their in-house training
programmes based on their requirements. In the past such support has been provided
to a large number of banks, housing finance companies as well as co-operative sector
institutions. In the larger context, NHB's efforts have been directed at capacity
building of the sector so as to ensure capability and commitment in the personnel
working in the sector.

Training is essential to the achievements of a business. Its most positive benefit is


better employees. A company develop the potential of an employee, and part of the
way a company encourages improvement is through training. The advantage
employers should remember about training is it offers them an improved retention
rate. Employees are more loyal to companies that value their growth and want to
cultivate it, and thus provide a better performance and decrease the rollover rate at
any company, no matter how small or large.

The growth in the housing sector has resulted in a need for human resources
development and training in the sector. These needs are highly specialized as
mortgage finance is different from extending financial assistance to other activities.
For empowering the Regional Rural Banks (RRBs) and introducing them to the latest
skill sets, NHB conducts training programmes for them at towns/rural areas where
they are based, defraying all the expenditure. The programmes meant for HFCs and
Banks are nominally charged.

The National Housing Bank (NHB) has formulated a special Rural Housing Finance
Scheme to mark the Golden Jubilee of Indian Independence. The scheme known as
Golden Jubilee Rural Housing Finance Scheme was launched on August 16, 1997. It

56
envisages provision of institutional credit to individuals desirous of constructing or
acquiring new dwelling units and for extensions or repairs of existing units. A number
of Primary Lending Institutions (PLIs) are currently active in the housing finance
sector in India. The institutions provide finance to individual borrowers, builders,
corporate houses etc. for purchase/construction of houses and for repair / up gradation
of existing house.

With the objective of providing long-term funds to these institutions, NHB extends
refinance in respect of the loans extended by them. The following categories of
institutions are eligible to take refinance from NHB:

Housing Finance Company


Scheduled Commercial Banks
Scheduled Urban Cooperative Banks
Regional Rural Banks
State Level Apex Co-operative Housing Finance Societies
Agriculture and Rural Development Banks
New Schemes

The National Housing Bank has sought permission from the Government of India and
the Reserve Bank of India for financing to the Non-Banking Financial Companies,
Builders for EWS category and Micro Finance Institutions. The institutions desirous
of availing refinance from NHB are required to fulfil basic criteria. The terms and
conditions of refinance and the procedure for availing it are contained in the
information brochure. The brochure can be obtained from NHB. The proposal is
pending with the Government of India. It is reported that all these amendments to the
National Housing Bank Act will be carried out once the Government decides transfer
of equity from Reserve Bank to Government of India.

5.Project Lending from NHB

The National Housing Bank provides financial assistance for project lending to a
range of borrowers both in the public and private sector. The eligible agencies for
project lending are:

57
Eligible Borrowers

1. Public Agencies

Agencies incorporated under the enactments of the Central or State Legislatures or


under the Companies Act, 1956 such as:

State Housing Boards/Improvement Trusts


State Slum Clearance Boards/Authorities
Housing Development Authorities
Municipal Corporations/Councils
New Town Development Agencies /Authorities
Local Authorities for Housing & Urban Development
Public Sector Companies for employee housing projects
Agencies set up or notified by Government for Specific Housing Programmes
(e.g. Earthquake rehabilitation etc.)

6.BUSINESS OF THE NATIONAL HOUSING BANK6

promoting, establishing, supporting or aiding in the promotion, establishment and


support of housing finance institutions;
making of loans and advances or rendering any other form of financial assistance
whatsoever for housing activities to housing finance institutions, scheduled
banks, state co-operative agricultural and rural development banks or any other
institution or class of institutions as may be notified by the Central Government;
making of loans and advances for housing or residential township cum-housing
development or slum clearance projects;
subscribing to or purchasing stocks, shares, bonds, debentures and securities of
every other description;

7. Regulatory and Supervisory Function8

The second important function of NHB is the regulatory role assigned to it. It has
mandate to regulate and supervise housing finance companies in India. Any company
incorporated under Companies Act, 1956 has to obtain a certificate of registration
from the National Housing Bank before commencing housing finance business. The
objective is to create the framework for an effective system of responsive regulation

58
in tandem with the free market approach which would promote the credibility of the
housing finance system among the savers and investors. The NHB has issued
Directions to the HFCs. These Directions are called Housing Finance Companies
(NHB) Directions, 1989.The directions were amended from time to time and now
fresh Directions were issued in 2010.

8. Procedure for Availing Financial Assistance the agencies desirous of availing


financial assistance from NHB are required to fulfil certain criteria and conditions and
procedure for availing the assistance.

NHB Residential Property Index (RESIDEX)

Keeping in view the prominence of housing and real estate as a major area for
creation of both physical and financial assets and its contribution in overall National
wealth, a need was felt for setting up of a mechanism, which could track the
movement of prices in the residential housing segment. Regular monitoring of the
house prices can be useful inputs for the different interest groups. Accordingly,
National Housing Bank, at the behest of the Ministry of Finance, undertook a pilot
study to examine the feasibility of preparing such an index at the National level. The
pilot study covered 5 cities viz. Bangalore, Bhopal, Delhi, Kolkata and Mumbai.
Besides, a Technical Advisory Group (TAG), with Adviser, Ministry of Finance, as
its Chairman and comprising of experts members from RBI, National Sample survey
Organization (NSSO), Central Statistical Organization (CSO), Labour Bureau, NHB
and other market players, was constituted to deal with all the issues relating to
methodology, collection of data and also to guide the process of construction of an
appropriate index. Based on the results of the study and recommendations of the
TAG, NHB launched RESIDEX for tracking prices of residential properties in India,
in July 2007 by Shri P. Chidambram (Honble Finance Minister). It has been updated
up to quarter ended September, 2012.

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Bharatiya Reserve Bank Note Mudra Private Limited (BRBNMPL)

Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL) was


established by Reserve Bank of India (RBI) as its wholly owned subsidiary on 3rd
February 1995 with a view to augmenting the production of bank notes in India to
enable the RBI to bridge the gap between the supply and demand for bank notes in the
country. The BRBNMPL has been registered as a Private Limited Company under the
Companies Act 1956 with its Registered and Corporate Office situated at Bengaluru.
The company manages 2 Presses one at Mysore in Karnataka and the other at Salboni
in West Bengal. The present capacity for both the presses is 16 billion note pieces per
year on a 2-shift basis.

The Board of Directors headed by a non Executive Chairman nominated by Reserve


Bank of India oversees the overall affairs of the Company. The Managing Director is
the whole time Chief Executive of the Company and is also a member of the Board.
The members of the Board of Directors are persons of high eminence drawn from
various professional fields. The Managing Director is assisted by a team of senior
officers in the Corporate Office and two presses at Mysore and Salboni.

Both the presses have installed the latest "state of the art" Technology in bank note
printing. The machinery at Mysore Site has been supplied by M/s. De La Rue Giori,
now KBA Giori, Switzerland and that of Salboni by M/s. Komori Corporation, Japan.
Both the presses are equipped with sophisticated Security Surveillance Systems. The
Corporate mission of the Company is to produce bank notes conforming to
international standards set by Central Banking and monetary authorities of the world
and makes them available in adequate quantities to the Reserve Bank of India at
competitive prices. BRBNMPL seeks to achieve this mission through its most valued
asset, its people. It has also gone in for extensive automation and the Enterprise
Resource Planning. The BRBNMPL has already put in place an effective Quality
Management System as embodied in the ISO 9001 - 2008 and also environmental
management systems and has also been certified as ISO 9001 : 2008 and ISO 14001:
2004 Company.

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Vision

"To emerge as a Global Leader in pursuit of excellence providing the best in Design,
printing, services and supply of banknotes and other security documents."

Mission

BRBNMPL will operate in Indian and global market catering to security document
needs of Central banks and monetary authorities of the world by designing, printing
and supplying banknotes and other security documents, using state-of-the-art
technology, adopting world-class practices in people and process management and
deploying highly reliable systems for product security and confidentiality, in order to
maximise economy, efficiency, effectiveness to the satisfaction of all stake-holders,
and with a deep sense of caring for the society and a proactive concern for
environment as a responsible Corporate Citizen.

HHHHistory of BRBNMPL

The bank note printing in India started in 1928 with the establishment of India
Security Press at Nashik by Government of India. Until the commissioning of Nashik
Press the Indian Currency Notes were got printed from Thomas De La Rue Giori of
United Kingdom. The second bank note printing press was established in Dewas
(Madhya Pradesh) in 1975 by Government of India. With the growth in population
and economic activity, the demand for bank notes has been steadily increasing. To
bridge the demand and supply gap, the Government of India decided to establish two
new bank note printing presses one at Mysore (Karnataka) and the other at Salboni
(West Bengal)

The New Note Press Project for setting up two new bank note printing presses was
initiated by Government of India. However, the project was transferred to Reserve
Bank of India(RBI), in December 1989. RBI formed a wholly owned subsidiary
Bharatiya Reserve Bank Note Mudran Private Limited to Complete the project and
finally manage the affairs of the two presses. The BRBNMPL was incorporated as a

61
Private Limited Company on 3 February 1995. By virtue of the provisions of 43 A of
rd

the companies Act, 1956 the Company became a deemed Public Limited Company
from 5 March 1997. Consequent to amendment of sec 43A in Company's
th

(Amendment) Act 2000, the Company again became a Private Limited Company
w.e.f.24th Feb 2002

Considering the magnitude of the project, the Company decided to establish the
presses in two phases viz, Phase I for establishing a Mini Press with a single
production line at each site which would be used as a testing ground for the new work
methods and train the personnel for efficient running of the Phase II machines. The
Phase II involved establishment of the Main Presses with 7 lines of production in
Mysore and 8 lines of production in Salboni. The phase I was operationalised at
Mysore and Salboni in June and December 1996 respectively. During 1998-99, the
Mini Press machinery at both the sites after testing the work methods and the
performance the machines was shifted to the Main Press. While all the seven lines of
production at Mysore went on stream on 12 May 1999, the Salboni Press was
th

inaugurated on 12 February 2000.


th

62
Management

Name Designation Address

Shri R. Gandhi Chairman

Dr. (Smt.) Deepali Pant The Company Secretary


Director
Joshi
Bharatiya Reserve Bank Note
Mudran Pvt. Ltd.,
Shirr Y.H. Malegam Director

No. 3 & 4, 1st Stage, 1st Phase,


Shri P.S. Bhattacharya Director
BTM Layout

Dr. A.G. Kulkarni Director Bannerghatta Road

Bengaluru - 560 029


Dr. K. N. Ganesh Director

Bharatiya Reserve Bank Note


Mudran Pvt. Ltd.,

Managing No. 3 & 4, 1st Stage, 1st Phase,


Shri Kaza Sudhakar BTM Layout
Director

Bannerghatta Road

Bengaluru - 560 029

Both the printing facilities have installed the modern "state of the art" technology in
bank note printing. The machinery for the printing press has been provided by the
following company.

1) Mysore branch by M/s. De La Rue Giori, now KBA Giori, Switzerland

2) Salboni branch- by M/s. Komori Corporation, Japan. Both the branches are
equipped with sophisticated Security Surveillance Systems.

63
BRBNMPL seeks to achieve the mission of its company through its most valued
asset, its people. It has also gone in for wide automation and the Enterprise Resource
Planning. The BRBNMPL has already put in place an effective Quality Management
System as embodied in the ISO 9001 - 2008 and also environmental management
systems and has also been certified as ISO 9001: 2008 and ISO 14001: 2004
Company.

64
Conclusion

RBI is the apex banking institution in India. RBI is an autonomous body promoted by
the government of India and is headquartered at Mumbai. The RBI plays a key role in
the management of the treasury foreign exchange movements and is also the primary
regulator for banking and non-banking financial institutions. The RBI operates a
number of government mints that produce currency and coins. The RBI has been one
of the most successful central banks around the world in preventing the effects of the
subprime crisis to the Indian economy, particularly its banks. This adds a lot of
credibility to every decision that is taken by them. Further, as a large proportion of the
Indian population is impacted by inflation, it was necessary for the RBI to think about
the majority and try to curb inflation by tightening its monetary stance. All the
functions of RBI, monitory, non monitory, supervisory or promotional are equally
significant in context of the Indian economy. Under the Banking Regulation Act, RBI
has been given a wide range of powers. Under the supervision & inspection of RBI,
the working of banks has greatly improved. RBI has been responsible for strong
financial support to industrial & agricultural development in the country.

65
Bibliography

websites

https://www.scribd.com/doc/8521810/Role-of-RBI-in-Indian-Economy

https://rbi.org.in/Scripts/AboutUsDisplay.aspx?pg=OrganizationStructure.htm

https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/FU1F7610B232D146E6967C41FC
D3E4D016.PDF

https://www.dicgc.org.in/pdf/DICGC_Booklet.pdf

https://nhb.org.in/

https://www.slideshare.net/SharavanAravindKumar/national-housing-bank

http://www.scienceandnature.org/IJEMS-Vol2(2)-Apr2011/IJEMS_V2(2)1.pdf

https://www.brbnmpl.co.in/english/

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