Working of RBI

Submitted By:
Supervised HarcharanKamalPreetKaur
By: BS14BCM006
B.Com(Hons.)
Dr.Anjana
Attri
Contents..
Introduction
History
Structure
Functions
Detection of fake Currency
Policy rates and Reserve rates
Organisation
News
Reserve Bank of India
The Reserve Bank of India (RBI, Hindi:
) is India's central banking institution, which
controls the monetary policy of the Indian rupee.
It commenced its operations on 1 April 1935
during the British Rule in accordance with the
provisions of the Reserve Bank of India Act,
1934. The original share capital was divided into
shares of 100 each fully paid, which were
initially owned entirely by private shareholders.
India's independence on 15 August 1947, the
RBI was nationalised on 1 January 1949.
The RBI plays an important part in the Development
Strategy of the Government of India. It is a member
bank of the Asian Clearing Union. The general
superintendence and direction of the RBI is entrusted
with the 21-member Central Board of Directors:
the Governor (Dr. Raghuram Rajan),
4 Deputy Governors,
2 Finance Ministry representatives,
10 government-nominated directors to
represent important elements from India's
economy, and
4 directors to represent local boards
headquartered at Mumbai, Kolkata, Chennai
and New Delhi.
History 19351905

. The Reserve Bank of India was founded on 1 April 1935 to respond

to economic troubles after the First World War.
. The Reserve Bank of India was based on the guidelines presented
by Dr. Ambedkar to the "Royal Commission on Indian Currency &
Finance in 1925.
. The original choice for the seal of RBI was The East India
Company Double Mohur, with the sketch of the Lion and Palm Tree.
However it was decided to replace the lion with the tiger, the national
animal of India.
. The Preamble of the RBI describes its basic functions to
regulate the issue of bank notes, keep reserves to secure
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 RBI was established in Calcutta (now
Kolkata), but was moved to Bombay (now Mumbai) in 1937.
. RBI , as apex institution acts as a guide, regulator, controller, and
promoter of the financial system.
Structure of RBI
Central Board of Directors
The Central Board of Directors is the main
committee of the Central Bank. The Government of
India appoints the directors for a 5-year term. The
Board consists of a Governor, and not more than 4
Deputy Governors, 4 Directors to represent the
regional boards, 2 from the Ministry of Finance and
10 other directors from various fields.
The central bank now wants to create a post of Chief
Operating Officer(COO) and re-allocate work
between the five of them(4 Deputy Governor and
COO).
Governors
The Governor of RESERVE BANK OF INDIA is Raghuram
Rajan.
There are 4 Deputy Governors, Deputy Governor H R Khan,
Dr Urjit Patel, R Gandhi and S S MUNDRA. Dr. Urjit Patel
became Deputy Governor in January 2013.
It is also often seen that an officer of Indian Administrative
Service is appointed Deputy Governor of RBI and later as the
Governor of RBI.
Supportive bodies
The Reserve Bank of India has four regional
representations: North in New Delhi, South in Chennai, East in
Kolkata and West in Mumbai.
The representations are formed by five members, appointed
for four years by the central government and serve. The
institution has 22 regional offices.
The Board of Financial Supervision (BFS), formed in November
1994, serves as a CCBD committee to control the financial
institutions.
 Offices and branches
The Reserve Bank of India has four zonal offices.
It has 19 regional offices at most state capitals and at a few
major cities in India. Few of them are located in Ahmedabad,
Bangalore, Bhopal, Bhubaneswar, Chandigarh, Chennai, Delhi,
Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, kochi, Kolkata,
Lucknow, Mumbai, Nagpur, Patna, and Thiruvananthapuram.
The bank has also two training colleges for its officers,
Reserve Bank Staff College at Chennai and
College of Agricultural Banking at Pune.
There are three autonomous institutions;
National Institute of Bank Management (NIBM),
Indira Gandhi Institute for Development Research (IGIDR),
Institute for Development and Research in Banking Technology
(IDRBT).
There are also four Zonal Training Centres at Mumbai, Chennai,
Kolkata and New Delhi
Main functions
Financial Supervision
The Reserve Bank of India performs this function under the guidance
of the Board for Financial Supervision (BFS). The Board was
constituted in November 1994 as a committee of the Central Board of
Directors of the Reserve Bank of India.
Objective
Primary objective of BFS is to undertake consolidated supervision of
the financial sector comprising commercial banks, financial
institutions and non-banking FINANCE companies.
Constitution
The Board is constituted by co-opting four Directors from the Central
Board as members for a term of two years and is chaired by the
Governor. The Deputy Governors of the Reserve Bank are ex-officio
members.
One Deputy Governor, usually, the Deputy Governor in charge of
banking regulation and supervision, is nominated as the Vice-
Chairman of the Board.
BFS meetings
The Board is required to meet normally once every month. It
considers inspection reports and other supervisory issues placed
before it by the supervisory departments.
BFS through the Audit Sub-Committee also aims at upgrading the
quality of the statutory audit and internal audit functions in banks and
financial institutions. The audit sub-committee includes Deputy
Governor as the chairman and two Directors of the Central Board as
members.
Regulator and supervisor of the financial system
The institution is also the regulator and supervisor of the financial
system and prescribes broad parameters of banking operations within
which the country's banking and financial system functions.
Its objectives are to maintain public confidence in the system,
protect depositors' interest and provide cost-effective banking
services to the public.
The RBI controls the monetary supply, monitors economic indicators
like the gross domestic product and has to decide the design of the
rupee banknotes as well as coins.
Managerial of exchange control
The central bank manages to reach different goals of the Foreign
Exchange Management Act, 1999. Objective: to facilitate external
trade and payment and promote orderly development and
maintenance of foreign exchange market in India

Issuer of currency
The bank issues and exchanges currency notes and coins and
destroys the same when they are not fit for circulation. The
objectives are to issue bank notes and giving public adequate supply
of the same, to maintain the currency and credit system of the
country to utilize it in its best advantage, and to maintain the
reserves. RBI maintains the economic structure of the country so that
it can achieve the objective of price stability as well as economic
development, because both objectives are diverse in themselves.
 Banker's bank
RBI also works as a central bank where commercial banks are
account holders and can deposit money.RBI maintains banking
accounts of all scheduled banks.
Commercial banks create credit. It is the duty of the RBI to control
the credit through the CRR, bank rate and open market operations.
As banker's bank, the RBI facilitates the clearing of cheques between
the commercial banks and helps inter-bank transfer of funds.
Detection of fake currency
On 22 January 2014; RBI gave a press release stating that after 31
March 2014, it will completely withdraw from circulation all
banknotes issued prior to 2005.
From 1 April 2014, the public will be required to approach banks for
exchanging these notes. Banks will provide exchange facility for
these notes until further communication. The Reserve Bank has
also clarified that the notes issued before 2005 will continue to be
legal tender. This would mean that banks are required to exchange
the notes for their customers as well as for non-customers.
From 1 July 2014, however, to exchange more than 10 pieces of
`500 and `1000 notes, non-customers will have to furnish proof of
identity and residence to the bank branch in which she/he wants to
exchange the notes.
This move from the Reserve Bank is expected to unearth black
money held in cash. As the new currency notes have added
security features, they would help in curbing the menace of fake
currency.
 Developmental role
The central bank has to perform a wide range of
promotional functions to support national objectives
and industries.The RBI faces a lot of inter-sectoral
and local inflation-related problems. Some of this
problems are results of the dominant part of the
public sector.

Related functions
The RBI is also a banker to the government and
performs merchant banking function for the central
and the state governments. It also acts as their
banker. The National Housing Bank (NHB) was
established in 1988 to promote private real estate
acquisition.
Policy rates and reserve
ratios
Bank rate
RBI lends to the commercial banks through its
discount window to help the banks meet depositors'
demands and reserve requirements for long term.
The interest rate the RBI charges the banks for this
purpose is called bank rate or Repo Rate. If the RBI
wants to increase the liquidity and money supply in
the market, it will decrease the bank rate and if RBI
wants to reduce the liquidity and money supply in
the system, it will increase the bank rate.
The Bank Rate, which is the standard rate at which
the RBI buys or re-discount bills of exchange or other
commercial paper, is presently used in the country.
Reserve requirement cash reserve ratio (CRR)
Every commercial bank has to keep certain minimum cash reserves with
Reserve Bank of India. According to sub-Section 42(1), the Reserve Bank,
having regard to the needs of securing the monetary stability in the
country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks
without any floor rate or ceiling rate.
The Reserve Bank could prescribe CRR for scheduled banks between 5%
and 20% of total of their demand and time liabilities. RBI uses this tool to
increase or decrease the reserve requirement depending on whether it
wants to effect a decrease or an increase in the money supply.
Statutory liquidity ratio (SLR)
Apart from the CRR, banks are required to maintain liquid assets in the form
of gold, cash and approved securities. Higher liquidity ratio forces
commercial banks to maintain a larger proportion of their resources in liquid
form and thus reduces their capacity to grant loans and advances.
A higher liquidity ratio diverts the bank funds from loans and advances to
investment in government and approved securities.
Generally RBI uses
1.Minimum margins for lending against specific securities.
2.Ceiling on the amounts of credit for certain purposes.
3.Discriminatory rate of interest charged on certain types of advances.
The organization of RBI can be divided into three parts:

Central Board
of Directors

Local Boards

Offices of RBI
1.Central Board of Directors
Central Board of Directors consist of 20 members. It is constituted as follows.
a)One Governor: it is the highest authority of RBI. He is appointed by the
Government of India for a term of 5 years. He can be re-appointed for another term.
b)Four Deputy Governors: Four deputy Governors are nominated by Central Govt.
for a term of 5 years
c)Fifteen Directors :Other fifteen members of the Central Board are appointed by the
Central Government. Out of these , four directors, one each from the four local
Boards are nominated by the Government separately by the Central Government.
Directors nominated by the Central Government are among the experts of
commerce, industries, finance, economics and cooperation. The finance secretary of
the Government of India is also nominated as Govt. officer in the board.
Ten directors are nominated for a period of 4 years.
The Governor acts as the Chief Executive officer and Chairman of the Central Board
of Directors. In his absence a deputy Governor nominated by the Governor, acts as
the Chairman of the Central Board.
The deputy governors and governments officer nominee are not entitled to vote at
the meetings of the Board. The Governor and four deputy Governors are full time
officers of the Bank.
2. Local Boards
Besides the central board, there are local boards
for four regional areas of the country with their
head-quarters at Mumbai, Kolkata, Chennai, and
New Delhi.
Local Boards consist of five members each,
appointed by the central Government for a term of 4
years to represent territorial and economic interests
and the interests of co-operatives and indigenous
banks.
The function of the local boards is to advise the
central board on general and specific issues referred
to them and to perform duties which the central
board delegates.
3. Offices of RBI

The Head office of the bank is situated in Mumbai

and the offices of local boards are situated in Delhi,
Kolkata and Chennai.
In order to maintain the smooth working of banking
system, RBI has opened local offices or branches in
Ahmedabad, Bangalore, Bhopal, Bhubaneshwar,
Chandigarh, Guwahati, Hyderabad, Jaipur, Jammu,
Kanpur, Nagpur, Patna, Thiruvananthpuram, Kochi,
Lucknow .
The RBI can open its offices with the permission of
the Government of India. In places where there are no
offices of the bank, it is represented by the state Bank
of India and its associate banks as the agents of RBI
News of RBI
Monday, 5 October 2015 - 11:45am IST | Place: Mumbai
RBI's 50bps rate cut may attract nearly Rs 48,000 crore from
FPIs into govt bonds
The rating agency believes that the transmission of the RBI
policy action to the overnight money market rates will be
reflected from this month.
RBI headquarters in Mumbai. A 50 basis points repo rate cut and
slew of policy measures announced by the Reserve Bank in the
recent monetary policy review could attract an average annual
flow of Rs 48,000 crore in government bonds from overseas
investors for the next few years, says a report by India Ratings.
In a surprise move, RBI last week reduced repo rate by 50 basis
points to 6.75% from 7.25%.
According to domestic rating agency India Ratings, RBI's front
loaded monetary action and accompanying policy changes have
a significant positives for fixed income and the rupee.
News.
04:05 PM | 24 Nov
NEW DELHI: In view of large number of applications, the Reserve Bank today shifted the issue date of
Sovereign Gold Bond by four days to November 30 to enable their smooth uploading into RBI's e-Kuber
system.

"Large number of applications has been received by banks and post offices. To enable smooth uploading
of applications into RBI's e-Kuber system, particularly by the post offices, it has since been decided to
shift the issue date of the Sovereign Gold Bond from November 26, 2015 to November 30, 2015," the
central bank said in a statement.

The first tranche of the bonds was open for subscription from November 5 to November 20, 2015. The
bonds were to be issued on November 26.

RBI further said that as the settlement date has now been shifted to November 30, the interest at
prevailing savings bank rate "shall be paid" from the date of realisation of payment to the new
settlement.

As per the operational guidelines regarding the bonds, the applicants will be paid interest at prevailing
savings bank rate from the date of realisation of payment to the settlement date (period for which they
are out of funds).

The bonds will be denominated in multiples of gram(s) of gold with a basic unit of 1 gram. The tenor of
the bond will be for a period of 8 years with exit option from 5th year.

Investors will be compensated at a fixed rate of 2.75 per cent per annum payable semi-annually on the
initial value of investment