Thursday, April 16, 2015

Reserve Bank of India : 12 Points we must know

1.       RBI was established during the British Rule and it commenced its operations on 1st April 1935; it was founded to respond to the economic troubles after the first World War. Originally the shares were owned by private shareholders. RBI was nationalised on 1st January 1949.

2.       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.

3.       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.

4.       After the Partition of India in 1947, the bank served as the central bank for Pakistan until June 1948 when the State Bank of Pakistan commenced operations.

5.       The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective addressing of complaints by bank customers.

6.       The bank issues and exchanges or destroys currency notes and coins that are not fit for circulation. The objectives are giving the public adequate sups of RBI are to issue bank notes, to maintain the currency and credit system of the country to utilize it in its best advantage, and to maintain the reserves.

7.       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.

8.       In order to curb the fake currency menace, RBI has launched a website to raise awareness among masses about fake notes in the provides information about identifying fake currency.

9.       RBI lends (no collateral required for long term lendings) 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.

10.   Every commercial bank has to keep certain minimum cash reserves with Reserve Bank of India. Consequent upon amendment 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.

11.   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, thus it is an anti-inflationary impact. A higher liquidity ratio diverts the bank funds from loans and advances to investment in government and approved securities.

12.   A report titled "Trend and Progress of Banking In India" is published annually, as required by the Banking Regulation Act of 1949. The report sums up trends and developments throughout the financial sector.