<<–2/”>a >h3>Role of RBI
| Pre-reform | Post-reform | |
| Developmental Role: the developmental role has increased in view of the changing structure of the economy with a focus on SMEs and Financial Inclusion | Priority Sector Lending: Introduced from 1974 with Public Sector Banks. Extended to all Commercial Banks by 1992 | In the revised guidelines for PSL the thrust is on ensuring adequate flow of bank credit to those sectors that impact large segments of the Population and weaker sections, and to the sectors which are EMPLOYMENT intensive such as agriculture and small enterprises |
| Lead Bank Scheme | Special Agricultural credit Plan introduced. | |
| Kisan Credit Card scheme (1998-99) | ||
| Focus on credit flow to micro, small and medium enterprises development | ||
| Financial Inclusion | ||
| Monetary Policy: the role of RBI has changed from regulating credit and Money flow directly to using market mechanisms for achieving policy targets. MP framework has changed to promote financial deregulations and market development. Role as a facilitator rather than as principal actor. | M3 as an intermediary target | Multiple Indicator Approach |
| Regulation of Foreign Exchange | Management of foreign exchange | |
| Direct credit control | Open Market Operations, MSS, LAF | |
| Rupee convertability highly managed | Full current ac convertability and some Capital Account convertability | |
| Banker to the government | Monetary policy was linked to the Fiscal Policy due to automatic monetisation of the deficit | Delinking of monetary policy from the fiscal policy. From 2006, under FRBM, RBI ceased to participate in the Primary Market auctions of the central government’s securities. |
| As regulator of financial sector: As regulator of the financial sector, RBI has faced the challenge of regulating the increasing financial sector in India. Credit flows have increased. RBI had to make sure that financial institutions are regulated in a way to protect the consumers while not impeding economic Growth. | Reduction in SLR | |
| Custodian of FOREX reserves | Forex reserves have increased drastically. Need to manage it adequately and avoid inflationary impact | |
| Inflation | Direct instruments were used | Multiple indicators |
| Financial Stability | Closed economy | Increased FDI and FII has made financial stability one of the policy objectives. |
| Money Market | Narsimhan Committee (1998) recommended reforms in the money market
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Central banks are responsible for a wide range of activities, including monetary policy, bank regulation and supervision, currency management, foreign exchange management, payment and settlement systems, financial stability, promoting financial inclusion, promoting Economic Development, research and statistics, and public relations and outreach.
Monetary policy is the process by which a central bank influences the Supply of Money and credit in an economy. The goal of monetary policy is to achieve price stability and maximum employment. Central banks use a variety of tools to implement monetary policy, including open market operations, reserve requirements, and the DISCOUNT rate.
Bank regulation and supervision is the process by which a central bank ensures that banks are operating in a safe and Sound manner. Central banks do this by setting standards for capital adequacy, liquidity, and risk management. They also conduct on-site and off-site examinations of banks to ensure compliance with these standards.
Currency management is the process by which a central bank manages the value of its currency. Central banks do this by buying and selling currencies in the Foreign exchange market. They also use interest rates and other tools to influence the demand for their currency.
Foreign exchange management is the process by which a central bank manages its foreign exchange reserves. Central banks hold foreign exchange reserves to protect their economies from shocks, to finance international trade and Investment, and to intervene in the foreign exchange market.
Payment and settlement systems are the systems that allow banks and other financial institutions to transfer money between each other. Central banks play a key role in ensuring the stability and efficiency of payment and settlement systems.
Financial stability is the condition in which the financial system is able to withstand shocks without major disruptions. Central banks play a key role in promoting financial stability by identifying and addressing risks in the financial system.
Promoting financial inclusion is the process of ensuring that everyone has access to affordable and reliable financial Services. Central banks play a key role in promoting financial inclusion by providing financial Education and outreach, and by developing financial products and services that meet the needs of low-income households and small businesses.
Promoting economic development is the process of raising the standard of living in an economy. Central banks play a key role in promoting economic development by setting monetary policy, regulating banks, and managing the currency.
Research and statistics is the process of collecting and analyzing data on the economy and the financial system. Central banks use this data to make decisions about monetary policy, bank regulation, and other areas of their work.
Public relations and outreach is the process of communicating with the public about the work of the central bank. Central banks use this process to educate the public about monetary policy, bank regulation, and other areas of their work.
Central banks play a vital role in the economy. They are responsible for a wide range of activities that affect the lives of everyone in the country. By understanding the work of central banks, we can better understand the economy and the financial system.
The Reserve Bank of India (RBI) is the central bank of India. It was established on April 1, 1935, in accordance with the Reserve Bank of India Act, 1934. The RBI is headquartered in Mumbai, Maharashtra.
The RBI is responsible for formulating and implementing monetary policy, maintaining financial stability, regulating the financial system, and providing Banking services to the government and the public.
The RBI is governed by a central board of directors, which is appointed by the government of India. The board is headed by the governor of the RBI, who is appointed by the president of India.
The RBI has a number of functions, including:
- Formulating and implementing monetary policy
- Maintaining financial stability
- Regulating the financial system
- Providing banking services to the government and the public
- Promoting the development of the financial system
- Acting as the banker’s bank
- Issuing currency notes
- Managing the country’s foreign exchange reserves
- Supervising and regulating banks and other financial institutions
- Conducting research on the Indian economy and the financial system
The RBI is an independent body, but it is accountable to the government of India. The RBI is required to submit an annual report to the government, and the governor of the RBI is required to appear before the Parliament of India to answer questions on the RBI’s activities.
The RBI is a powerful institution, and its decisions have a significant impact on the Indian economy. The RBI’s monetary policy decisions can affect interest rates, inflation, and economic growth. The RBI’s regulatory decisions can affect the stability of the financial system and the availability of credit to businesses and consumers. The RBI’s banking services can affect the government’s ability to finance its operations and the public’s ability to access financial services.
The RBI is a complex institution, and its functions are wide-ranging. The RBI plays a vital role in the Indian economy, and its decisions have a significant impact on the lives of millions of Indians.
Here are some frequently asked questions about the RBI:
What is the Reserve Bank of India?
The Reserve Bank of India (RBI) is the central bank of India. It was established on April 1, 1935, in accordance with the Reserve Bank of India Act, 1934. The RBI is headquartered in Mumbai, Maharashtra.What are the functions of the RBI?
The RBI has a number of functions, including:- Formulating and implementing monetary policy
- Maintaining financial stability
- Regulating the financial system
- Providing banking services to the government and the public
- Promoting the development of the financial system
- Acting as the banker’s bank
- Issuing currency notes
- Managing the country’s foreign exchange reserves
- Supervising and regulating banks and other financial institutions
Conducting research on the Indian economy and the financial system
How is the RBI governed?
The RBI is governed by a central board of directors, which is appointed by the government of India. The board is headed by the governor of the RBI, who is appointed by the president of India.What is the role of the RBI in the Indian economy?
The RBI plays a vital role in the Indian economy. It is responsible for formulating and implementing monetary policy, maintaining financial stability, regulating the financial system, and providing banking services to the government and the public. The RBI’s decisions have a significant impact on the Indian economy.What are some of the challenges facing the RBI?
The RBI faces a number of challenges, including:- The global financial crisis
- The rise of new technologies
- The changing nature of the financial system
- The need to maintain financial stability
The need to promote economic growth
What is the future of the RBI?
The RBI is a complex institution, and its future is uncertain. However, it is likely that the RBI will continue to play a vital role in the Indian economy.
1. The Reserve Bank of India (RBI) was established in the year:
(A) 1935
(B) 1947
(C) 1950
(D) 1960
2. The head office of the RBI is located in:
(A) Mumbai
(B) New Delhi
(C) Chennai
(D) Kolkata
3. The RBI is the central bank of:
(A) India
(B) Pakistan
(C) Bangladesh
(D) Sri Lanka
4. The RBI is responsible for:
(A) issuing currency
(B) regulating banks
(C) managing the country’s foreign exchange reserves
(D) all of the above
5. The RBI is governed by a board of directors consisting of:
(A) 12 members
(B) 15 members
(C) 18 members
(D) 21 members
6. The RBI’s current Governor is:
(A) Shaktikanta Das
(B) Urjit Patel
(C) Raghuram Rajan
(D) Duvvuri Subbarao
7. The RBI’s main objective is to:
(A) maintain price stability
(B) promote economic growth
(C) ensure financial stability
(D) all of the above
8. The RBI’s Monetary Policy Tools include:
(A) open market operations
(B) Repo rate
(C) Reverse Repo Rate
(D) all of the above
9. The RBI’s regulatory powers include:
(A) licensing banks
(B) setting capital adequacy requirements
(C) imposing prudential norms
(D) all of the above
10. The RBI’s foreign exchange management powers include:
(A) managing the country’s foreign exchange reserves
(B) intervening in the foreign exchange market
(C) issuing guidelines on foreign exchange transactions
(D) all of the above