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Banking and Financial Institutions With MCQs RBI Important Act By Navdeep Kaur
RBI Organizational Structure of RBI Reserve Bank of India Central Board of Directors Local Boards (4) (Mumbai, Kolkata, New Delhi, Chennai) Governor Deputy Governor Executive Governor Central Office Department Training Establishments
Establishment The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934 The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. Though originally privately owned, since n owned by the Government of India. Preamble The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as: n in 1949, the Reserve Bank is fully "to regulate the issue of Bank notes and keeping of 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; to have a modern monetary policy framework to meet the challenge of an increasingly complex economy, to maintain price stability while keeping in mind the objective of growth."
Central Board The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act. Appointed/nominated for a period of four years Constitution: o Official Directors Full-time: Governor and not more than four Deputy Governors o Non-Official Directors Nominated by Government: ten Directors from various fields and two government Official Others: four Directors - one each from four local boards Functions General superintendence and direction of the Bank's affairs
Local Boards One each for the four regions of the country in Mumbai, Calcutta, Chennai and New Delhi Membership: consist of five members each appointed by the Central Government for a term of four years Functions: To advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks; to perform such other functions as delegated by Central Board from time to time.
Sitting Fees and Halting Allowance of Board Directors/Members Sitting Fees and Halting Allowance paid to the Directors of the Central Board, Members of the Local Board and Directors attending CCB/BFS/BPSS meetings Type of the Meetings Sitting Fees per meeting (in INR) Halting allowance per diem (in INR) 1. 2. 3 20,000 20,000 10,000 1,200 1,200 1,200 Central Board Local Board Committee of the Central Board (CCB), Board For Financial Supervision (BFS) and Board for Payment & Settlement Systems (BPSS) 4. 10,000 1,200 Audit and Risk Management Sub-Committee (ARMS), Human Resource Management Sub-Committee; Building Sub-Committee and Information Technology Sub-Committee Note: In addition, the travel and stay expenses towards attending Board/Committee/ Sub-Committee meetings are also borne by the Reserve Bank of India
Financial Supervision The Reserve Bank of India performs this function under the guidance of the Board for Financial Supervision (BFS) The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India. Objective Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. Constitution The Board is constituted by co-opting four Directors from the Central Board as members for a term of two years and is chaired by the Governor. The Deputy Governors of the Reserve Bank are ex-officio members. One Deputy Governor, usually, the Deputy Governor in charge of banking regulation and supervision, is nominated as the Vice-Chairman of the Board. BFS meetings The Board is required to meet normally once every month. It considers inspection reports and other supervisory issues placed before it by the supervisory departments. BFS through the Audit Sub-Committee also aims at upgrading the quality of the statutory audit and internal audit functions in banks and financial institutions. The audit sub-committee includes Deputy Governor as the chairman and two Directors of the Central Board as members. The BFS oversees the functioning of Department of Banking Supervision (DBS), Department of Non-Banking Supervision (DNBS) and Financial Institutions Division (FID) and gives directions on the regulatory and supervisory issues.
Functions Some of the initiatives taken by BFS include: 1. restructuring of the system of bank inspections 2. introduction of off-site surveillance, 3. strengthening of the role of statutory auditors and 4. strengthening of the internal defences of supervised institutions. The Audit Sub-committee of BFS has reviewed the current system of concurrent audit, norms of empanelment and appointment of statutory auditors, the quality and coverage of statutory audit reports, and the important issue of greater transparency and disclosure in the published accounts of supervised institutions Current Focus supervision of financial institutions consolidated accounting . legal issues in bank frauds divergence in assessments of non-performing assets and supervisory rating model for banks.
Legal Framework l. Acts administered by Reserve Bank of India Reserve Bank of India Act, 1934 Public Debt Act, 1944/Government Securities Act, 2006 Government Securities Regulations, 2007 Banking Regulation Act, 1949 Foreign Exchange Management Act, 1999 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Chapter lI) Credit Information Companies(Regulation) Act, 2005 Payment and Settlement Systems Act, 2007 . o Payment and Settlement Systems Regulations, 2008 and Amended up to 2011 and BPSS Regulations, 2008 o The Payment and Settlement Systems (Amendment) Act, 2015 No. 18 of 2015 Factoring Regulation Act, 2011
II. Other relevant Acts Negotiable Instruments Act, 1881 Bankers' Books Evidence Act, 1891 State Bank of India Act, 1955 . Companies Act, 1956/ Companies Act, 2013 Securities Contract (Regulation) Act, 1956 State Bank of India Subsidiary Banks) Act, 1959 Deposit Insurance and Credit Guarantee Corporation Act, 1961 Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 Regional Rural Banks Act, 1976 Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 National Bank for Agriculture and Rural Development Act, 1981 National Housing Bank Act, 1987 . Recovery of Debts Due to Banks and Financial Institutions Act, 1993 . Competition Act, 2002 Indian Coinage Act, 2011 : Governs currency and coins Banking Secrecy Act The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993
Main Functions Monetary Authority: . Formulates, implements and monitors the monetary policy Objective: maintaining price stability while keeping in mind the objective of growth Regulator and supervisor of the financial system: banking and fimandia operations banking and financial system functions. Objective: maintain public confidence in the system, protect depositors' interest Prescribes broad parameters of banking operations within which the country's and provide cost-effective banking services to the public. Manager of Foreign Exchange Manages the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
Issuer of currency: . Issues and exchanges or destroys currency and coins not fit for circulation. Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality. Developmental role . Performs a wide range of promotional functions to support national objectives. Related Functions Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. Banker to banks: maintains banking accounts of all scheduled banks.
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Quantitative Method: (i) Bank Rate: The bank rate, also known as the discount rate, is the rate payable by commercial banks on the loans from or rediscounts of the Central Bank. A change in bank rate affects other market rates of interest. An increase in bank rate leads to an increase in other rates of interest and conversely, a decrease in bank rate results in a fall in other rates of interest. Aelberate manipulation of the bank rate by the Central Bank to influence the flow of credit created by the commercial banks is known as bank rate policy. It does so by affecting the demand for credit the cost of the credit and the availability of the credit.
Likewise, a purchase of securities by the Central Bank results in more cash flowing to the commercials banks. With increased cash in their hands, the commercial banks can create more credit, and make more finance available. Thus, purchase of securities may work as an anti-deflationary measure of control. The Reserve Bank of India has frequently resorted to the sale of government securities to which the commercial banks have been generously contributing. Thus, open market operations in India have served, on the one hand as an instrument to make available more budgetary resources and on the other as an instrument to siphon off the excess liquidity in the system
(iii) Variable Reserve Ratios: Variable reserve ratios refer to that proportion of bank deposits that the commercial banks are required to keep in the form of cash to ensure liquidity for the credit created by them. A rise in the cash reserve ratio results in a fall in the value of the deposit multiplier. Conversely, a fall in the cash reserve ratio leads to a rise in the value of the deposit multiplier.
A fall in the value of deposit multiplier amounts to a contraction in the availability of credit, and, thus, it may serve as an anti-inflationary measure. A rise in the value of deposit multiplier, on the other hand, amounts to the fact that the commercial banks can create more credit, and make available more finance for consumption and investment expenditure. A fall in the reserve ratios may, thus, work as anti-deflationary method of monetary control. The Reserve Bank of India is empowered to change the reserve requirements of the commercial banks. The Reserve Bank employs two types of reserve ratio for this purpose, viz. the Statutory Liquidity Ratio (SLR) and the Cash Reserve Ratio (CRR)