THE RESERVE BANK OF INDIAIntroductionThe Reserve Bank of India 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. Following India's independence on 15 August 1947, the RBI was nationalized 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. Each of these local boards consists of 5 members who represent regional interests, and the interests of co-operative and indigenous banks.

The bank is also active in promoting financial inclusion policy and is a leading member of the Alliance for Financial Inclusion (AFI).

STRUCTURE OF RBI

The Central Board of Directors is the main committee of the Central Bank. The Government of India appoints the directors for a 4-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)

Central Board of Directors At the apex is the Central Board of Directors, which is made of official directors and Non-official directors. Official Directors the Governor and Deputy Governor of RBI are its full time official directors. There is one Governor appointed and maximum four deputy

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governors. Governor and Deputy Governors are appointed by Central Government. The tenure of service is maximum of 5 years or till the age of 62 whichever is earlier. Non-Official Directors: There are 16 non-official directors in RBI. Out of them, there are 4 Non-official Directors represent the local Boards located in Delhi, Chennai, Kolkata and Mumbai representing 4 regions of India. Rest 10 Non-official directors are nominated by the Reserve Bank of India. These 10 personalities have expertise in various segments of Indian Economy. The Central Board of Directors holds minimum 6 meetings every year. Out of which, at least 1 meeting every quarter is held. Though, typically the committee of the central board meets every week (Wednesday). Assistive Boards There are two assistive bodies for Central Board of Directors viz. Board of Financial Supervision (BFS) and Board for Payment and Settlement Systems (BPSS). Both of these are chaired by RBI Governor. Local Boards There are four local boards of RBI located in Chennai, Kolkata, Mumbai and New Delhi. These four local boards represent four regions of the country. Members and directors of local boards are appointed by central government for four-year terms. The local boards represent regional and economic interests and the interests of co-operative and indigenous banks. Departments Reserve Bank of India has 33 departments which focus on policy issues in the Reserve Bank’s functional areas and internal operations. Regional Offices and Sub-offices There are 19 regional offices and 9 sub-offices of RBI. Most of the 19 regional offices are located in state capitals.

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. Two of the four Deputy Governors is traditionally from RBI ranks, and is selected from the Bank's Executive Directors. As for the rest, one is nominated from among the Chairpersons of Public Sector Bank, and the other is an economist of repute . 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. The case of Y. Venugopal Reddy, an officer of Indian Administrative Service batch of 1964 is a noted example for this trend in the RBI.2 | P a g e

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—beside the advice of the Central Board of Directors—as a forum for regional banks and to deal with delegated tasks from the central board. 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. It has four members, appointed for two years, and takes measures to strength the role of statutory auditors in the financial sector, external monitoring and internal controlling systems.

The Tarapore committee was set up by the Reserve Bank of India under the chairmanship of former RBI deputy governor S.S.Tarapore to "lay the road map" to capital account convertibility. The five-member committee recommended a three-year time frame for complete convertibility by 1999–2000.

On 1 July 2007, in an attempt to enhance the quality of customer service and strengthen the grievance redressal mechanism, the Reserve Bank of India created a new customer service department.

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. It also has 09 sub-offices located in Dehradun, Gangtok, Panaji, Raipur, Ranchi, Shillong, Shimla , Srinagar and Agartala .

The bank has also two training colleges for its officers, viz. 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.

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HISTORY OF THE RESERVE BANK OF INDIA

Reserve Bank of India-10 Rupees (1937), first year of banknote issue.

1950–1960

In the 1950s the Indian government, under its first Prime Minister Jawaharlal Nehru, developed a centrally planned economic policy that focused on the agricultural sector. The administration nationalized commercial banks and established, based on the Banking Companies Act of 1949 (later called the Banking Regulation Act), a central bank regulation as part of the RBI. Furthermore, the central bank was ordered to support the economic plan with loans.

1985–1991

A lot of committees analysed the Indian economy between 1985 and 1991. 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 Indian financial market was a leading example for so-called "financial repression" (Mackinnon and Shaw). The Discount and Finance House of India began its operations on the monetary market in April 1988; the National Housing Bank, founded in July 1988, was forced to invest in the property market and a new 4 | P a g e

financial law improved the versatility of direct deposit by more security measures and liberalisation.

1991–2000

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 Narsimham Committee advised 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 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 liberalisation to diversify owner structures in 1998.

The National Stock Exchange of India took the trade on in June 1994 and 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 Private Limited—in February 1995 to produce banknotes.

Since 2000

The Foreign Exchange Management Act from 1999 came into force in June 2000. It should improve the item 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.

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MANAGEMENTDepartment of Statistics and Information ManagementCollection, processing and analysis of data on banking, corporate and external sectors.Planning, designing and organising quick sample surveys regularly for area of interest to the Reserve Bank.Maintaining the Reserve Bank’s Data Warehouse and disseminating data/information.Modelling and forecasting of important macro-economic indicators.Development of methodology for the measurement and estimation of variables and improvement of the database of various sectors of the economy through participation in committees, working groups, etc.Providing technical support to other departments of the Reserve Bank in statistical analysis in specific areas and undertaking studies in the areas of interest to the Reserve Bank.

Human Resource Management DepartmentHuman Resource Management Department (HRMD) essentially facilitates the Reserve Bank's central banking activities by (i) creating an enabling environment to enhance the efficiency of the organisation (ii) drawing out from the staff the very best by a system of proper placements, incentives, and (iii) creating an atmosphere of trust, a certain security of expectations and a feeling that the organisation cares about the well-being and personal aspirations of the staff. This helps align personal aspirations of the staff with professional goals and helps enhance efficiency in the organisation. Specifically, the functions of HRMD are:a) To evolve and implement policies for:RecruitmentPlacementPromotions and career progressionPerformance and potentiality appraisalTraining, development and skill up gradationMobility (Transfers and Rotation)Reward and motivationRetirement/voluntary vacationsWage structure and other facilities

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Deputation/Secondment/Tour of dutyb) To generally administer discipline management system in the Reserve Bankc) To disseminate information under the Right to Information Act, 2005 with a view to promoting transparency and accountability in the Reserve Bank's operationsd) To maintain up-to-date database on human resources in the Reserve Banke) To maintain harmonious industrial relations and to conduct negotiations with various recognised bodies of different categories of staff on matters like pay scales and allowances, welfare schemes, personnel policies, etc.f) To continuously review the appraisal system in order to make it an effective tool for HRD policy managementg) To design career and succession planh) To oversee the Reserve Bank’s training establishments (namely, Reserve Bank Staff College, Chennai and College of Agricultural Banking, Pune besides Zonal Training Centres at Chennai, Kolkata, Mumbai and New Delhi) and revitalise training functionsi) To administer Staff Suggestion Schemej) To oversee Summer Placementk) To publish the Reserve Bank's house journal ‘WITHOUT RESERVE’ and to conduct RBI Quiz.l) To act as Secretariat to Human Resource Management Sub-Committee of the Central Board.m) To oversee matters pertaining to Prevention of Sexual Harassment of women at work place including secretarial assistance to Central Complaints Committee.

Internal Debt Management DepartmentThe main activities of the Internal Debt Management Department include:Managing the Government’s debt in a risk efficient and cost effective manner;Providing innovative and practical solutions for government’s debt management;Building a robust institutional framework of primary dealers (PDs).Specific functions of the Department include:(i) Government Borrowing: To manage market borrowing programmes of the Government of India (including preparing an issuance calendar in consultation with the Government of India), all State Governments and the Union Territory of Pondicherry. The function involves choosing the instrument and tenor, 7 | P a g e

manage the auctioning process and monitoring State and Central cash balances.(ii) Dealing Operations: To interface with the Government securities market for purchasing securities from the secondary market for investment purposes by State Governments under schemes like CSF & GRF and on behalf of foreign central banks. It also monitors movement of yields of Government securities, among other things, and provides necessary feedback to Top Management. It carries out monthly and quarterly analysis of the Government Securities - Secondary market.(iii) Primary Dealers: To enter into agreements with PDs, monitor and review their performance with regard to underwriting and bidding commitments in primary markets, conduct underwriting auctions and supervise standalone PDs.

(iv) Research: To provide policy, analytical and technical inputs for various committees and conferences including State Finance Secretaries conference. To also act as the focal point for answering parliamentary questions, queries of the Central Board and Committee of Central Board of the Reserve Bank, research contributions to the Reserve Bank’s, Government of India’s and other publications.(v) Management Information Systems (MIS): To monitor the data pertaining to Government cash balances, maintains the MIS for the Top Management, provide data for various statutory and internal publications, oversee the technology platform for Government securities auction activities and undertake analysis. Also to undertake the assessment and short term projections of Government cash balances primarily for liquidity management purposes of the Reserve Bank.(vi) Central Debt: To maintain accounting/reporting of public debt management functions. These include formulation of policy and monitoring of Public Debt Offices, which act as depositories of Government securities, as also to maintain and service public debt, administration of Government Securities Act, 2006/Rules 2007 and also Public Debt Act, 1944/ Rules 1947 wherever applicable.

Risk Monitoring DepartmentThe Risk Monitoring Department (RMD) has been constituted for implementation of Enterprise-wide Risk Management System in the Reserve Bank. The department has two divisions looking after operational risks and 8 | P a g e

financial risks. For effective identification, assessment and management of risks uniformly throughout the Reserve Bank, RMD has been mandated:To prepare a broad risk management framework and to formulate and to periodically review the Reserve Bank’s policies/methodologies/matrices and to interact with functional units to ensure that all significant risks are identified.To aggregate, monitor and periodically report the risks reported by functional units to the Risk Monitoring Committee (RMC) and Audit and Risk Management Sub-Committee (ARMS).To assess and report the financial risks arising out of the Reserve Bank’s policy actions to the RMC and ARMS.To create institutional memory by building a database of ‘loss’ and ‘near loss’ events.To periodically review the adequacy and appropriateness of the Reserve Bank’s Business Continuity Plans (BCPs) and systems.To foster risk management culture in the organisation.

RBI REGULATION ACT, 1934.

RESERVE BANK OF INDIA ACT, 19341 [Act No. 2 of 1934] [6th March 1934] PREAMBLE An Act to constitute a Reserve Bank of India. Whereas it is expedient to constitute a Reserve Bank for India to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in 2 [India] and generally to operate the currency any credit system of the country to its advantage; And whereas in the present disorganisation of the monetary systems of the world it is not possible to determine what will be suitable as a permanent basis for the Indian monetary system; But whereas it is expedient to make temporary provision on the basis of the existing monetary system, and to leave the question of the monetary standard best suited to India to be considered when the international monetary position has become sufficiently clear and stable to make it possible to frame permanent measures.

Objectives of the Reserve Bank of India

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 9 | P a g e

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.Another objective of the Reserve Bank has been to remain free from political influence and be in successful operation for maintaining financial stability and credit. The fundamental object of the Reserve Bank of India is to discharge purely central banking functions in the Indian money market, i.e., to act as the note- issuing authority, bankers’ bank and banker to government, and to promote the growth of the economy within the framework of the general economic policy of the Government, consistent with the need of maintenance of price stability.A significant object of the Reserve -Bank of India has also been to assist the planned process of development of the Indian economy. Besides the traditional central banking functions, with the launching of the five-year plans in the country, the Reserve Bank of India has been moving ahead in performing a host of developmental and promotional functions, which are normally beyond the purview of a traditional Central Bank.

Other important objectives:

* 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. 

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* 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 institutions. * For centralization of cash reserves of commercial banks. * To maintain balance between the demand and supply of currency.

FUNCTIONS OF RBI

MONETARY FUNCTIONS

1. Monopoly of Note Issue

In terms of Section 22 of the Reserve Bank of India Act, the RBI has been given the statutory function of note issue on a monopoly basis. The note issue in India was originally based upon "Proportional Reserve System".

The Government of India issues rupee coins in the denomination of Rs.1, 2, and 5 to public. These coins are required to be circulated to public only through Reserve Bank under Section 38 of the RBI Act. The RBI presently issues notes of denominations Rs.10 and above.

RBI manages circulation of money through currency chests. Originally RBI issued currency notes of Rs.2 and above. However, due to higher cost of printing small denomination notes these denominations are now coincides and issued by Government

2. Banker to the Government

It acts as adviser to Government on economic and financial matters. In brief, as a banker to the Government the RBI renders the following functions:

(a) Collects taxes and makes payments on behalf of the Government11 | P a g e

(b) Accepts deposits from the Government

(c) Collects cheques and drafts deposited in the Government accounts.

(d) Provides short-term loans to the Government

(e) Provides foreign exchange resources to the Government.

(f) Keep the accounts of various Government Department.

(g) Maintains currency chests in treasuries at some importance places for the convenience of the government.

(h) Advises governments on their borrowing programmes.

(i) Maintains and operates Central Government's IMF accounts.

3. Agent and Adviser of the Government

The RBI acts, as the financial agent and adviser to the Government. It renders the following functions:

(a) As an agent to the Government, it accepts loans and manages public debts on behalf of the Government.

(b) It issues Government bonds, treasury bills, etc.

(C) Acts as the financial adviser to the Government in all important economic and financial matters

4. Banker to the Banks

The RBI acts as banker to all scheduled banks. All banks in India, should keep certain percentage of their demand and time liabilities as reserves with the RBI. This is known as Cash Reserve Ratio or CRR. At end November 1999, it is 3 per cent for RRBs and co-operative banks; 9 per cent for commercial banks.

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They also maintain Current Account with RBI for various banking transactions. This centralization of reserves and accounts enables the RBI to achieve the following:

(a) Regulation of money supply credit.

(b) Acts as custodian of cash reserves of commercial banks.

(c) Strengthen the banking system of the country

(d) Exercises effective control over banks in Liquidity Management.

(e) Ensures timely financial assistance to the Banks in difficulties.

(f) Gives directions to the Banks in their lending policies in the public interest.

(g) Ensures elasticity in the credit structure of the country.

(h) Quick transfer of funds between member banks.

5. Acts as National Clearing House

In India RBI acts as the clearing house for settlement of banking transactions. This function of clearing house enables the other banks to settle their interbank claims easily. Further it facilitates the settlement economically.

The RBI acts as a lender of last resort or emergency fund provider to the other member banks. As such, if the commercial banks are not able to get financial assistance from any other sources, then as a last resort, they can approach the RBI for the necessary financial assistance.

In such situations, the RBI provides credit facilities to the commercial banks on eligible securities including genuine trade bills which are usually made available at Bank Rate.

RBI rediscounts bills and grants advances against securities.

7. Acts as the Controller of Credit

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The RBI controls the credit creation by commercial banks. For this, the RBI uses both quantitative and qualitative methods. The important methods used by RBI are,

(i) Bank Rate Policy

(ii) Open Market Operation

(iii) Variation of Cash Reserve Ratio

(iv) Fixing Margin Requirements

(v) Moral Suasion

(vi) Issue of Directives

(vii) Direct Action

8. Custodian of Foreign Exchange Reserves

The RBI acts as the custodian of foreign exchange reserves. Adequate reserves may help maintain foreign exchange rates. In order to minimize the undue fluctuations in the rates it may buy and sell foreign currencies depending upon the situations.

Its purchase and sale of foreign currencies from the market is done like commercial banks. However, the objective of the RBI will not be profit booking.

It may buy the foreign currency to build up adequate reserves or to arrest unwarranted rise in the value of rupee which may be due to sudden inflow of foreign currencies into India. It may also buy and sell foreign currencies in international market to switch the portfolio of investments denominated in different international currencies depending upon circumstances and needs.

NON-MONETARY FUNCTIONS

1. Promotion of Banking Habits14 | P a g e

The RBI institutionalizes saving through the promotion of banking habit and expansion of the banking system territorially and functionally.

It has helped to bring into existence several industrial finance corporations such as Industrial Finance Corporation of India, Industrial Credit and Investment Corporation of India for industrialization of the country. Similarly sector specific corporations took care of development in their respective spheres of activity.

2. Provides Refinance for Export Promotion

The RBI takes the initiative for widening facilities for the provision of finance for foreign trade particularly of exports.

The Export Credit and Guarantee Corporation (ECGC) and Exam Banks render useful functions on this line. To encourage exports the RBI is providing refinance facilities for export credit given by commercial banks. Further the rate of interest on export credits continues to be prescribed by RBI at a lower rate.

3. Facilities for Agriculture

The RBI extends indirect financial facilities to agriculture regularly. Through NABARD it provides short-term and long-term financial facilities to agriculture and allied activities. It established NABARD for the overall administration of agricultural and rural credit. Indian agriculture would have starved of a cheap credit but for the institutionalization of rural credit by RBI.

4. Facilities to Small Scale Industries

The RBI takes active steps to increase the supply of credit to small industries. It gives directives to the commercial banks regarding the extension of credit facilities to small scale industries. It encourages commercial banks to provide guarantee services to SSI sector. Banks advances to SSI sector are classified under priority sector advances.

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5. Helps Co-operative Sector

RBI extends indirect financing to State Co-operative Banks thereby connects the cooperative sector with the main banking system of the country. The finance is mostly, is routed through NABARD. This way the financial needs of agricultural sector are taken care of by RBI.

6. Function of Inspection and Enquiry

RBI inspects and makes enquiry in respect of various matters covered under Banking Regulations Act and RBI Act. The inspection of commercial banks and financial institutions are conducted in terms of the provisions contained in Banking Regulation Act.

These refer to their banking operations like loans and advances, deposits, investment functions and other banking services. Under such inspection RBI ensures that the banks and financial institutions carry on their operations in a prudential manner, without taking undue risk but aiming at profit maximization within the existing rules and regulations.

This type of inspection is carried on periodically once a year or two covering all branches of banks. Banks are obliged to take remedial measures on the lapses / deficiencies pointed out during inspection. In addition RBI also calls for periodical information concerning certain assets and liabilities of the banks to verify that the banks continue to remain in good health.

POLICY RATE AND RESERVE RAE (OLD V/S NEW)

Repo (Repurchase) rate - Repo (Repurchase) rate also known as the benchmark interest rate is the rate at which the RBI lends MONEY to the 16 | P a g e

banks for a short term. When the repo rate increases, borrowing from RBI becomes more expensive. If RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate similarly, if it wants to make it cheaper for banks to borrow money it reduces the repo rate.

Reverse Repo rate - Reverse Repo rate is the short term borrowing rate at which RBI borrows money from banks. The Reserve bank uses this tool when it feels there is too much money floating in the banking system. An increase in the reverse repo rate means that the banks will get a higher rate of interest from RBI. As a result, banks prefer to lend their money to RBI which is always safe instead of lending it others (people, companies etc.) which is always risky. 

Repo Rate signifies the rate at which liquidity is injected in the banking system by RBI, whereas Reverse Repo rate signifies the rate at which the central bank absorbs liquidity from the banks. Reverse Repo Rate is linked to Repo Rate with a difference of 1% between them.

Reverse Report rate was an independent rate till 03/05/2011.  However, in the monetary policy announced on 03/05/2011, RBI has decided that now onwards the Reverse Repo Rate will not be announced separately, but will be linked to Repo rate and it will always be 100 bps below the Repo rate (till RBI decides to delink the same)

MSF - Marginal Standing facility - It is a special window for banks to borrow from RBI against approved government securities in an emergency situation like an acute cash shortage. MSF rate is higher than Repo rate. Current MSF Rate: 8.25%

The concept of Marginal Standing Facility was announced by RBI wef 03/05/2011 (However implemented wef 09/05/2011).  At that time it was decided that Marginal Standing Facility i.e. MSF rate will be linked to Repo rate and will be 100 bps above the Repo Rate (till RBI decides to change the same).   WEF 15/07/2013, RBI has announced that from now onwards

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the MSF Rate will be 300 basis points above the Repo Rate.   Once again MSF rates were revised wef 20/09/2013 to 9.50%, which is 200 bps above the Repo Rate.

Under this scheme, Banks are able to borrow up to 2% of their respective Net Demand and Time Liabilities" outstanding at the end of the second preceding fortnight.  The rate of interest on the amount accessed from this facility wef 7th October, 2013 has been fixed at 9.00% (earlier wef 20th September, 2013, it was reduced 9.50%).  This reduction has been done to meet the crunch in liquidity in the banking sector.  This scheme is likely to reduce volatility in the overnight rates and improve monetary transmission.

Bank Rate - This is the long term rate (Repo rate is for short term) at which central bank (RBI) lends money to other banks or FINANCIAL institutions. If the bank rate goes up, long-term interest rates also tend to move up, and vice-versa. When bank rate is hiked, banks hike their own lending rates. Current bank rate is 8.25%

CRR - Cash Reserve Ratio - Banks in India are required to hold a certain proportion of their deposits in the form of cash. However Banks don't hold these as cash with themselves, they deposit such cash (akaCURRENCY chests) with Reserve Bank of India, which is considered as equivalent to holding cash with themselves. This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the RBI and is known as the CRR or Cash Reserve Ratio.

When a bank's deposits increase by `100, and if the cash reserve ratio is 9%, the banks will have to hold ` 9 with RBI and the bank will be able to use only ` 91 for investments and lending, credit purpose. Therefore, higher the ratio, the

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lower is the amount that banks will be able to use for lending and INVESTMENT. This power of Reserve bank of India to reduce the lendable amount by increasing the CRR, makes it an instrument in the hands of a central bank through which it can control the amount that banks lend. Thus, it is a tool used by RBI to control liquidity in the banking system.

SLR - Statutory Liquidity Ratio - Every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, GOLD and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). RBI is empowered to increase this ratio up to 40%. An increase in SLR also restricts the bank's leverage position to pump more money into the economy.

Net Demand Liabilities - Bank accounts from which you can withdraw your money at any time like your savings accounts and current account.Time Liabilities - Bank accounts where you cannot immediately withdraw your money but have to wait for certain period. E.g. fixed deposit accounts. 

RBI had recently announced new rates on 02.06.2015.

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Difference in Policy Rates and Reserve rates

Policy Rate New(current) Older

Repo Rate 7.25%

(w.e.f. 02/06/2015)

Decreased from 7.50% which was continuing since 04/03/2015

Reverse Repo 6.25%

(w.e.f. 02/06/2015)

Decreased from 6.50% which was continuing since 04/03/2015

Marginal Standing Facility (MSF)

8.25% (w.e.f. 02/06/2015)

Decreased from 8.50% which was continuing since 04/03/2015

Bank Rate 8.25% (w.e.f. 02/06/2015)

Decreased from 8.50% which was continuing since 04/03/2015

Reserve Ratio New(current) Older

Cash Reserve Ratio (CRR)

4.00% (wef 09/02/2013) -announced on 29/01/2013

Decreased from 4.25%which was continuing since 30/10/2012

Statutory Liquidity Ratio (SLR)

21.50%(w.e.f. 07/02/2015)(announced on 03/02/2015)

Decreased from 22.00% which was continuing since 09/08/2014

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DETECTION OF FAKE CURRENCY

In order to curb the fake currency menace, RBI has launched a website to raise awareness among masses about fake notes in the market.www.paisaboltahai.rbi.org.in provides information about identifying 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. The institution maintains banking accounts of all scheduled banks, too. RBI on 7 August 2012 said that Indian banking system is resilient enough to face the stress caused by the drought like situation because of poor monsoon this year.

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