RBI

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-- By Harsh Shah Reserve Bank Of India

Reserve Bank Of India:

Reserve Bank Of India Introduction Definition Functions Credit control measures

RBI.:

RBI. Establishment : The RBI was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934 . 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 . Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India . Governor D Subbarao

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Preamble : 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." RBI.

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Definition : A banking system in which a single bank has either a complete or residuary Monopoly in the note issue. -- Vero Smith Lender of last resort. -- R.G.Hawtry A bank which constitutes the apex of the monetary and banking structure of its country. -- De Kock RBI .

WHO Controls RBI?:

WHO Controls RBI? The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act. Appointed/nominated for a period of four years Constitution: Official Directors Full-time : Governor and not more than four Deputy Governors Non-Official Directors Nominated by Government: ten Directors from various fields and one government Official Others: four Directors - one each from four local boards

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Functions Of RBI : Traditional Function : Regulates issue of Currency. Exchange Management & Control. Statutory Bank Of Govt. Exerts Credit Control. RBI is Bankers Bank. Valuable Data Collection. Extremely Last Resort of Finance. Supervisory Function : Board Of Finance Supervision Action Against erroring Bank. Notices & Directives regarding Advances. Keeps Check on Small Savings. Development Function : Overall Promotion of Commercial Bank. Finance For Housing Purposes. Industrial Credit Institutions. Numerous Regional Devp. Measures. Devp. Of Export-Import Bank. Industrial Devp. in SSI. Agricultural Credit.

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Traditional Functions : Regulates issue of Currency.

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Exchange Management And Control Statutory Bank Of Govt.

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Exerts Credit Control. RBI is Bankers Bank.

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Valuable Data Collection. Extremely Last Resort of Finance.

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Supervisory Function Board Of Finance Supervision

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Action Against erroring Bank. Notices & Directives regarding Advances. Keeps Check on Small Savings. CRR , SLR…

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Development Function Overall Promotion of Commercial Bank.

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Finance For Housing Purposes. Industrial Credit Institutions

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Numerous Regional Devp. Measures. Devp. Of Export-Import Bank. Rural Bank (ATM Dena Bank)

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Industrial Devp. in SSI. Agricultural Credit

Credit Control Measures Introduced by RBI: :

Credit Control Measures Introduced by RBI: Most appropriate body for creation of credit. For smooth functioning of economy, RBI Controls credit through, Quantitative or General Method. Qualitative or Selective Method

Quantitative or General Method:

Quantitative or General Method Cash Reserve Ratio (CRR) Bank Rate. Open Market Operations. Statutory Liquidity Ratio.

Cash Reserve Ratio (CRR):

Cash Reserve Ratio (CRR) Cash reserve Ratio (CRR) in India is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks. CRR- 5%

Bank Rate.:

Bank Rate. Bank Rate is the rate at which Central Bank provides loan to Commercial Bank. Bank rate , also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the money supply . Bank Rate- 6%

Open Market Operation.:

Open Market Operation. An important instrument of credit control, the Reserve Bank of India purchases and sells securities in Open Market Operations. Open market operations are the means of implementing monetary policy by which a central bank controls its national money supply by buying and selling government securities , or other financial instruments .

Statutory Liquidity Ratio (SLR):

Statutory Liquidity Ratio (SLR) SLR is Statutory Liquidity Ratio. It’s the percentage of  Demand and Time Maturities  that banks need to have in any or combination of the following forms: i) Cash ii) Gold valued at a price not exceeding the current market price, iii) Unencumbered approved securities (G Secs. or Gilts come under this) valued at a price as specified by the RBI from time to time. The maximum limit of SLR is 40% and minimum limit of SLR is 25%. It’s 25% now. SLR- 24%

II. Qualitative Measures:

II. Qualitative Measures Provision of Minimum Margin Requirement . Allows Different Rate of Interest. Credit Rating. Allows Moral Suasion. Direct Action Method.

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