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A Presentation
on

“Role of Reserve Bank of India as
Regulator”
Compiled By,
Anil Mishra
Ayush Vaish

2012MB73

Durgesh Ku...
Table of Contents
• Introduction to RBI

• Main Activities of RBI
• Monetary Authority
• Regulator of the Banking System

...
Introduction to RBI
• The central bank of the country is the Reserve Bank of India (RBI).

• It was established in April 1...
Introduction to RBI
The Bank was constituted for the need of following:

• To regulate the issue of banknotes.
• To mainta...
12/3/2013

5
Main Functions of the RBI

12/3/2013

6
Monetary Authority
Objectives

•Maintaining price stability
•Ensuring adequate flow of credit
to the productive sectors of...
Indirect Instruments
•

Liquidity Adjustment Facility (LAF): Consists of daily infusion or absorption of

liquidity on a r...
Indirect Instruments
•

Marginal Standing Facility (MSF): was instituted

under which scheduled

commercial banks can borr...
12/3/2013

10
Regulator of
the Banking System
The Reserve Bank regulates and supervises the nation’s financial system. Different
departm...
Tools of RBI
• On-site inspections

• Off-site surveillance, making use of required reporting by the regulated
entities
• ...
The RBI’s Regulatory Role
• Licensing
• Prescribing capital requirements
• Monitoring governance

• Setting prudential reg...
The RBI’s Regulatory Role
• Regulating interest rates in specific areas

• Setting appropriate regulatory norms related to...
Challenges
•

For commercial banks: Focus is on implementing Basel III norms, which will
require improved capital planning...
RBI as Regulator and Supervisor
of Payment and Settlement Systems
•

The Payment and Settlement Systems Act of 2007 (PSS A...
RBI as a Regulator of Credit
•

The Reserve Bank of India is the controller of credit i.e. it has the power to

influence ...
RBI as a Regulator of Foreign Exchange
•

The RBI is responsible for administration of the Foreign Exchange Management

Ac...
Regulator and Supervisor of the Financial
System
•

The institution is also the regulator and supervisor of the financial ...
References
• http://www.rbi.org.in/scripts/AboutusDisplay.aspx” , as accessed on 17 –

August 2013
• “http://finance.india...
Thank you

12/3/2013

21
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Role of rbi as a regulator

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Role of rbi as a regulator

  1. 1. A Presentation on “Role of Reserve Bank of India as Regulator” Compiled By, Anil Mishra Ayush Vaish 2012MB73 Durgesh Kumar 2012MB88 Sanatan Srivastava 2012MB30 Ujjwal Mishra 12/3/2013 2012MB06 2012MB01 School of Management Studies Motilal Nehru National Institute of Technology, Allahabad 1
  2. 2. Table of Contents • Introduction to RBI • Main Activities of RBI • Monetary Authority • Regulator of the Banking System • Regulator of Payment and Settlement System • Regulator of the Credit • Regulator of the Foreign Exchange • Regulator of the Financial System 12/3/2013 2
  3. 3. Introduction to RBI • The central bank of the country is the Reserve Bank of India (RBI). • It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. • The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the beginning. • The Government held shares of nominal value of Rs. 2,20,000. 12/3/2013 3
  4. 4. Introduction to RBI The Bank was constituted for the need of following: • To regulate the issue of banknotes. • To maintain reserves with a view to securing monetary stability and, • To operate the credit and currency system of the country to its advantage. • 12/3/2013 4
  5. 5. 12/3/2013 5
  6. 6. Main Functions of the RBI 12/3/2013 6
  7. 7. Monetary Authority Objectives •Maintaining price stability •Ensuring adequate flow of credit to the productive sectors of the economy to support economic growth •Financial stability •The relative emphasis among the objectives varies from time to time, depending on evolving macroeconomic developments. Instruments •Cash Reserve Ratio (CRR): The share of net demand and time liabilities that banks must maintain as cash balance with the Reserve Bank. •Statutory Liquidity Ratio (SLR): The share of net demand and time liabilities that banks must maintain in safe and liquid assets, such as government securities, cash and gold. • Refinance facilities: Sectorspecific refinance facilities 12/3/2013 7
  8. 8. Indirect Instruments • Liquidity Adjustment Facility (LAF): Consists of daily infusion or absorption of liquidity on a repurchase basis, through repo (liquidity injection) and reverse repo (liquidity absorption) auction operations, using government securities as collateral. • Repo/Reverse Repo Rate: These rates under the Liquidity Adjustment Facility (LAF) determine the corridor for short-term money market interest rates. In turn, this is expected to trigger movement in other segments of the financial market and the real economy. • Open Market Operations (OMO): Outright sales/purchases of government securities, in addition to LAF, as a tool to determine the level of liquidity over the medium term. 12/3/2013 8
  9. 9. Indirect Instruments • Marginal Standing Facility (MSF): was instituted under which scheduled commercial banks can borrow over night at their discretion up to one per cent of their respective NDTL at 100 basis points above the repo rate to provide a safety valve against unanticipated liquidity shocks • Bank Rate: It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. It also signals the medium-term stance of monetary policy. 12/3/2013 9
  10. 10. 12/3/2013 10
  11. 11. Regulator of the Banking System The Reserve Bank regulates and supervises the nation’s financial system. Different departments of the Reserve Bank oversee the various entities that comprise India’s financial infrastructure. They oversee: Commercial banks and all-India development financial institutions: Urban cooperative Regional Rural banks: Banks (RRB), District Central Regulated and Cooperative Banks supervised by the and State CoUrban Banks operative Banks: Regulated by the Department Department of Regulated by the Banking Operations Rural Planning and and Development. Credit Department and supervised by NABARD 12/3/2013 Non-Banking Financial Companies (NBFC): Regulated and supervised by the Department of Non-Banking Supervision 11
  12. 12. Tools of RBI • On-site inspections • Off-site surveillance, making use of required reporting by the regulated entities • Thematic inspections, scrutiny and periodic meetings • The Board for Financial Supervision oversees the Reserve Bank’s regulatory and supervisory responsibilities. 12/3/2013 12
  13. 13. The RBI’s Regulatory Role • Licensing • Prescribing capital requirements • Monitoring governance • Setting prudential regulations to ensure solvency and liquidity of the banks • Prescribing lending to certain priority sectors of the economy 12/3/2013 13
  14. 14. The RBI’s Regulatory Role • Regulating interest rates in specific areas • Setting appropriate regulatory norms related to income recognition, asset classification, provisioning, investment valuation, exposure limits . • Initiating new regulation 12/3/2013 14
  15. 15. Challenges • For commercial banks: Focus is on implementing Basel III norms, which will require improved capital planning and risk management skills. • For urban cooperative banks: Focus is on profitability, professional management and technology enhancement. • For NBFCs: Focus is on identifying the interconnections and the roles these institutions should play as the financial system deepens. • For regional rural banks: Focus is on enhancing capability through IT and HR for serving the rural areas. • For rural cooperative banks: Focus is on ensuring that they meet minimum prudential standards. 12/3/2013 15
  16. 16. RBI as Regulator and Supervisor of Payment and Settlement Systems • The Payment and Settlement Systems Act of 2007 (PSS Act) gives the Reserve Bank oversight authority, including regulation and supervision, for the payment and settlement systems in the country. • In this role, RBI focus on the development and functioning of safe, secure and efficient payment and settlement mechanisms. • The Reserve Bank has a two-tiered structure. The first tier provides the basic framework for our payment systems. The second tier focuses on supervision of this framework. 12/3/2013 16
  17. 17. RBI as a Regulator of Credit • The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India. • It holds the cash reserves of all the scheduled banks. • It controls the credit operations of banks through quantitative and qualitative controls. • It controls the banking system through the system of licensing, inspection and calling for information. • It acts as the lender of the last resort by providing rediscount facilities to scheduled banks. • It can do so through changing the Bank rate or through open market operations. 12/3/2013 17
  18. 18. RBI as a Regulator of Foreign Exchange • The RBI is responsible for administration of the Foreign Exchange Management Act,1999 and regulates the market by issuing licences to banks and other select institutions to act as Authorized Dealers in foreign exchange. The Foreign Exchange Department (FED) is responsible for the regulation and development of the market. • Regulating transactions related to the external sector and facilitating the development of the foreign exchange market. • Ensuring smooth conduct and orderly conditions in the domestic foreign exchange market • Managing the foreign currency assets and gold reserves of the country 12/3/2013 18
  19. 19. Regulator and Supervisor of the Financial System • The institution is also the regulator and supervisor of the financial system and prescribes broad parameters of banking operations within which the country's banking and financial system functions. • Its objectives are to maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public. • The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective redress of complaints by bank customers. • The RBI controls the monetary supply, monitors economic indicators like the gross domestic product and has to decide the design of the rupee banknotes as well as coins. 12/3/2013 19
  20. 20. References • http://www.rbi.org.in/scripts/AboutusDisplay.aspx” , as accessed on 17 – August 2013 • “http://finance.indiamart.com/investment_in_india/rbi.html”, as accessed on 17 – August 2013 • “http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/RBIB140520012.pdf” , as accessed on 17 – August 2013 • “http://rbidocs.rbi.org.in/rdocs/Content/PDFs/FUNCWWE080910.pdf” , as accessed on 17 – August 2013 12/3/2013 20
  21. 21. Thank you 12/3/2013 21

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