CHAPTER 2- RBI(MAIN FUNCTIONS)

1.Monetary Authority

Formulates, Implements and monitors the monetary policy

Objective-Maintaining price stability and ensuring adequate flow of credit to productive sectors

What is Monetary Policy?

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest(changes) for the purpose of economic growth and stability.

GOAL-The official goal usually include relatively stable prizes and low unemployment, low and stable inflation.

Monetary policy is associated with interest rates and availability credit.

Monetary Tools

The reserve banks monetary policy department (MPD) formulates monetary policy.

There are several direct and indirect instruments that are used in the formulation and implementation of monetary policy.

Monetary tools

Direct Tools

1.CASH RESERVE RATIO (CRR)

2.STATUTORY LIQUID RATIO (SLR)

3.REFIANANCE FACILITIES

Indirect Tools

1.LIQUIDITY ADJUSTMENT FACILITY(LSF)2.REPO RATE

3.REVERSE REPO RATE4.OPEN MARKET SOLUTION

5.MARGINAL STANDING FACILIIES

6.BANK RATE7.MARKET STABALIZATION

SCHEME(MSS)

2.ISSUER OF CURRENCY

The banks issues or destroys currency notes that are not fit for regulation.

3. Bankers to Banks

RBI also work as a central bank where commercial banks are account holders and can deposit money.

4.Regulator and supervisor of the financial system Prescribes broad parameters of

Banking and financial systems

5. Manager of Foreign Exchange

To facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India .

6.Developmental Role

To support National Objectives and Industries

7. Bankers To government The Reserve Bank has undertaken

the traditional central banking function of managing government transactions.

8.Financial Regulation and Supervision

The Reserve Bank’s regulatory and supervisory domain extends not only in the Indian banking system but also to the-

Developmental Financial Institutions(DFIs)

Non Banking Financial Companies(NBFC)

Primary Dealers, Credit Information companies and select segments of the financial Markets.