...which central bank of the country (in India it is RBI) allows finance to commercial banks. Bank Rate is a tool, which central bank uses for short-term purposes. Any upward revision in Bank Rate by central bank is an indication that banks should also increase deposit rates as well as Prime Lending Rate. This any revision in the Bank rate indicates could mean more or less interest on your deposits and also an increase or decrease in your EMI. What is Bank Rate ? (For Non Bankers) : This is the rate 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. Thus, it can said that in case bank rate is hiked, in all likelihood banks will hikes their own lending rates to ensure and they continue to make a profit. | What is CRR? The Reserve Bank of India (Amendment) Bill, 2006 has been enacted and has come into force with its gazette notification. Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate. [Before the enactment of this amendment, in terms of Section 42(1) of the RBI Act, the Reserve Bank could prescribe CRR for scheduled banks between 3 per cent and 20 per cent of total of their demand and time liabilities]. RBI uses CRR either to drain excess liquidity or to...
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...The Reserve Bank of India (RBI) is the nation’s central bank fundamental commitment to maintaining the nation’s monetary and financial stability. From ensuring stability of interest and exchange rates to providing liquidity and an adequate supply of currency and credit for the real sector; from ensuring bank penetration and safety of depositors’ funds to promoting and developing financial institutions and markets, and maintaining the stability of the financial system through continued macro-financial surveillance, the Reserve Bank plays a crucial role in the economy. Our decisions touch the RBI at a Glance Managed by Central Board of Directors India’s monetary authority Supervisor of financial system Issuer of currency Manager of foreign exchange reserves Banker and debt manager to government Supervisor of payment system Banker to banks Maintaining financial stability Developmental functions Research, data and knowledge Sharing Central Board of Directors by the Numbers Official Directors 1 Governor 4 Deputy Governors, at a maximum Non-Official Directors 4 directors—nominated by the Central Government to represent each local board 10 directors nominated by the Central Government with expertise in various segments of the economy 1 representative of the Central Government 6 meetings—at a minimum—each year 1 meeting—at a minimum—each quarter Monetary Authority Issuer of Currency Banker and Debt Manager to Government Banker to...
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... |8.00% | |Reverse Repo Rate |7.00% | |Cash Reserve Ratio (CRR) |4% | |Statutory Liquidity Ratio (SLR) |22.00% | |Base Rate |10.00%–10.25% | |Savings Deposit Rate |4% | |Term Deposit Rate |8.00%–9.5% | Bank rate RBI lends (no collateral required for long term lendings) to the commercial banks through its discount window to help the banks meet depositor’s demands and reserve requirements for long term. The interest rate the RBI charges the banks for this purpose is called bank rate. If the RBI wants to increase the liquidity and money supply in the market, it will decrease the bank rate and if RBI wants to reduce the liquidity and money supply in the system, it will increase the bank rate. The bank rate has lost its significance as a monetary policy tool as the central bank signals stance through changes in repo, the...
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...economy Main Limitations of the Monetary Policy adopted by the Reserve Bank of India 1. Huge Budgetary Deficits : RBI makes every possible attempt to control inflation and to balance money supply in the market. However Central Government's huge budgetary deficits have made monetary policy ineffective. Huge budgetary deficits have resulted in excessive monetary growth. 2. Coverage Of Only Commercial Banks : Instruments of monetary policy cover only commercial banks so inflationary pressures caused by banking finance can be controlled by RBI, but in India, inflation also results from deficit financing and scarcity of goods on which RBI may not have any control. 3. Problem Of Management Of Banks And Financial Institutions : The monetary policy can succeed to control inflation and to bring overall development only when the management of banks and Financial institutions are efficient and dedicated. Many officials of banks and financial institutions are corrupt and inefficient which leads to financial scams in this way overall economy is affected. 4. Unorganised Money Market : Presence of unorganised sector of money market is one of the main obstacle in effective working of the monetary policy. As RBI has no power over the unorganised sector of money market, its monetary policy becomes less effective. 5. Less Accountability: At present time, the goals of monetary policy in India, are not set out in specific terms and there is insufficient freedom in the use...
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...the money in the economy • Used to combat inflation by raising interest rates TOOLS OF MONETARY POLICY IN INDIA Cash Reserve Ratio (CRR) Statutory Liquidity Ratio (SLR) Repo and Reverse Repo Rate CASH RESERVE RATIO (CRR) • Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank • RBI uses CRR either to drain excess liquidity or to release funds needed for the economy from time to time. STATUTORY LIQUIDITY RATIO (SLR) • SLR is the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. REPO AND REVERSE REPO RATE REPO RATE • It is the rate at which the RBI lends shot-term money to the banks. When the repo rate increases borrowing from RBI becomes more expensive. REVERSE REPO RATE • It is the rate at which banks park their short-term excess liquidity with the RBI. The RBI uses this tool when it feels there is too much money floating in the banking system. PURPOSE OF REPO AND REVERSE REPO RATE • Repo rate and reverse repo are an important tool used by the RBI to control the supply of money in the banking system • In case of high inflation, RBI increases the repo rate and thus the cost of borrowing funds become dear. • By reducing the Repo rate RBI can reduce the cost of borrowing and there by the interest...
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...What is Banking Ombudsman (BO)? * He hears customers’ complaints against banks. * BO was first setup in UK. * In India, RBI started this scheme in 1995. Appointment & Tenure * Earlier RBI used to appoint reputed persons from banking, finance, management, legal etc. sectors as Banking Ombudsmen (BO). * But now RBI has reserved this BO post for its own Chief General Managers and General Managers. * Tenure: 3 years at a time. * Reappointment: yes possible. Jurisdiction * Banking Ombudsman (BO) Scheme applies to whole of India (including Jammu and Kashmir). Banking Ombdusmen have jurisdiction over 1. All commercial banks (scheduled and non scheduled, public and private) 2. Regional rural banks 3. scheduled primary co-operative banks 4. NBFCs (BO’s Jurisdiction limited to “loan” part.) * BO is not a replacement of Consumer forum/courts. He merely supplements them. * BO deals with matters less than or equal to Rs.10 lakhs. * Here are some examples situation where BO can help you: Regular banking 1. Demand draft, cheques, pay orders etc. not issued on time. (or not paid on time) 2. Credit card related complaints (e.g. bank putting hidden charges. Your credit card was stolen but bank did not disable it even after you called them.) 3. You asked the bank to close your account / credit card but they are not doing it. 4. Bank refuses to open your account without giving valid reasons. 5. Bank closes down your account without valid...
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...2009-10 5.9. OBJECTIVE OF MONETARY POLICY 5.10. POLICY STANCE 5.11. ANALYSIS 5.12. OBSERVATION 5. 2010-11 6.13. OBJECTIVE OF MONETARY POLICY 6.14. POLICY STANCE 6.15. ANALYSIS 6.16. OBSERVATION 6. 2011-12 7.17. OBJECTIVE OF MONETARY POLICY 7.18. POLICY STANCE 7.19. ANALYSIS 7.20. OBSERVATION 7. CONCLUSION 8. RECOMMENDATION 9. BIBLIOGRAPH INDIAN ECONOMY: AN OVERVIEW India is a South Asian country that is the seventh largest in area and has the second largest population in the world. India covers an area of 3,287,240 square km and its population stands at 1.215 billion people in 2010. Understanding the Indian Economy Large, dynamic and steadily expanding, the Indian economy is characterized by a huge workforce operating in many new sectors of opportunity. The Indian economy is one of the fastest growing economies and is the 12th largest in terms of the market exchange rate at $1,430.02 billion (2010 India GDP). In terms of purchasing power parity, the Indian economy ranks the fourth largest in the world. However, poverty still remains a major concern besides disparity in income. The Indian economy has been propelled by the liberalization policies that have been instrumental in boosting demand as well as...
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...Reforms in the Indian Monetary Policy During 1990s The Monetary policy of the RBI has undergone massive changes during the economic reform period. After 1991 the Monetary policy is disassociated from the fiscal policy. Under the reform period an emphasis was given to the stable macro economic situation and low inflation policy. The major changes in the Indian Monetary policy during the decade of 1990. 1. Reduced Reserve Requirements : During 1990s both the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR) were reduced to considerable extent. The CRR was at its highest 15% plus and additional CRR of 10% was levied, however it is now reduced by 4%. The SLR is reduced form 38.5% to a minimum of 25%. 2. Increased Micro Finance : In order to strengthen the rural finance the RBI has focused more on the Self Help Group (SHG). It comprises small and marginal farmers, agriculture and non-agriculture labour, artisans and rural sections of the society. However still only 30% of the target population has been benefited. 3. Fiscal Monetary Separation : In 1994, the Government and the RBI signed an agreement through which the RBI has stopped financing the deficit in the government budget. Thus it has seperated the Monetary policy from the fiscal policy. 4. Changed Interest Rate Structure : During the 1990s, the interest rate structure was changed from its earlier administrated rates to the market oriented or liberal rate of interest. Interest rate slabs...
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...RBI – The Reserve Bank of India is the apex bank of the country, which was constituted under the RBI Act, 1934 to regulate the other banks, issue of bank notes and maintenance of reserves with a view to securing the monetary stability in India. Demand Deposit – A Demand deposit is the one which can be withdrawn at any time, without any notice or penalty; e.g. money deposited in a checking account or savings account in a bank. Time Deposit – Time deposit is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time. When the term is over it can be withdrawn or it can be held for another term. Fixed Deposits – FDs are the deposits that are repayable on fixed maturity date along with the principal and agreed interest rate for the period. Banks pay higher interest rates on FDs than the savings bank account. Recurring Deposits – These are also called cumulative deposits and in recurring deposit accounts, a certain amounts of savings are required to be compulsorily deposited at specific intervals for a specified period. Savings Account – Savings account is an account generally maintained by retail customers that deposit money (i.e. their savings) and can withdraw them whenever they need. Funds in these accounts are subjected to low rates of interest. Current Accounts – These accounts are maintained by the corporate clients that may be operated any number of times in a day. There is a maintenance charge for the current accounts...
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...Inflation: Various measures initiated by RBI for controlling inflation and their impact on Economy. Our dear friend is making our life more dearer, ‘Inflation’. In economic term, inflation is rise in general prices of goods and services in an economy which leads to erosion in the purchasing power of money i.e. each unit of currency buys fewer goods and services. Its effects on the economy are both positive and negative. The task of keeping inflation low or stable is usually given to monetary authorities. Generally these monetary authorities are central banks. ____________ The primary tool used by RBI to control inflation is monetary policy There are broadly two ways of controlling inflation in an economy 1 Fiscal measuresand 2 Monetary measures In economic term, inflation is rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. It leads to erosion in the purchasing power of money. Its effects on the economy are various and can be simultaneously positive and negative. Negative effects of inflation include decrease in the real value of money and other monetary items over time, uncertainty over future inflation which may discourage investments and savings and inflation is rapid enough, shortage of goods as consumers begin hoarding out concern that prices will increase in the future. Positive effects include ensuring central banks can...
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...RBI & Its Monetary Policies Table of Contents NO. | Particulars | 1. | Introduction of RBI | 2. | Monetary policy | 3. | Monetary policy objectives | 4. | Monetary policy functions | 5. | Operations of Monetary policy * Quantitative credit control * Selective or qualitative methods | 6. | Operating procedures of Monetary policy * Liquidity adjustment facility (LAF) * Market stabilization scheme | 7. | Monetary policy tools | 8. | Recent changes in Monetary policy | 9. | Evaluation of Monetary policy | 10. | Limitations | 11. | Conclusion | 12. | Bibliography | 13. | | 14. | | 15. | | 16. | | INTRODUCTION OF 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 Reserve Bank of India was nationalized in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government...
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...RBI'S MONETARY POLICY INITIATIVES SINCE 2008-09 AND ITS EFFECTIVENESS IN CONTAINING INFLATION PROJECT OF MACROECONOMICS ON “RBI’S MONETARY POLICY INITIATIVES SINCE 2008-09 AND ITS EFFECTIVENESS IN CONTAINING INFLATION” SUBMITTED BY ARPIT PANGASA (11DM032) GUNJAN GODWANI (11DM052) RIDHI PRASAD (11DM122) UNDER THE GUIDANCE OF PROF. JAGDISH SHETTIGAR BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY, GREATER NOIDA RBI'S MONETARY POLICY INITIATIVES SINCE 2008-09 AND ITS EFFECTIVENESS IN CONTAINING INFLATION RESERVE BANK OF INDIA It is the central banking institution of India and controls the monetary policy of the rupee. The institution was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of India Act, 1934. Reserve Bank of India plays an important part in the development strategy of the government. It is a member bank of the Asian Clearing Union. Reserve Bank of India was nationalised in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist...
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...The Reserve Bnak Of India With Specific Reference To Credit Control Policy The Reserve Bank of India (RBI) is India's central banking institution, which controls the monetary policyof the Indian rupee. It was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of India Act, 1934.[4] The share capital was divided into shares of 100 each fully paid, which were initially owned entirely by private shareholders.[5] Following India's independence in 1947, the RBI was nationalised in the year 1949. Structure Structure of RBI The organization of RBI can be divided into three parts: 1) Central Board of Directors. 2) Local Boards 3) Offices of RBI 1.Central Board of Directors : The organization and management of RBI is vested on the Central Board of Directors. It is responsible for the management of RBI.Central Board of Directors consist of 20 members. It is constituted as follows. a)One Governor: it is the highest authority of RBI. He is appointed by the Government of India for a term of 5 years. He can be re-appointed for another term. b)Four Deputy Governors: Four deputy Governors are nominated by Central Govt. for a term of 5 years c)Fifteen Directors :Other fifteen members of the Central Board are appointed by the Central Government. Out of these , four directors,one each from the four local Boards are nominated by the Government separately by the Central Government. Ten directors nominated by the Central Government...
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... If oil prices stay at these levels, China and India would benefit the most because China is the second largest oil importer in the world. It will be able t consume more oil with the drop of prices. Oil accounts for a third of India’s imports. 2. Tapering in QE was attributing this strong inflationary force in India, threatening a BoP crisis. It was also argued that inflation was due to supply constraints. I think their inflation issues can be “solely” managed through monetary means. 3. Some of the measures RBI took during the 2008 financial crisis were, it sharply reduced policy rates and the CRR. The repo rate and CRR were reduced four times. The RBI also created a potential provision of primary liquidity of 5.6 trillion. Interest rates on foreign currency were raised deposits made by non-resident Indians were raised as well. These measures were taken in order to increase the supply of dollars in the foreign exchange market to devaluate the U.S dollar against the Indian rupee. 4. Tapering of QE announced in 2013 caused a depreciation of the Rupee because it led to weakening the dollar against the rupee because of the increased demand of the latter. This money was invested in India in the form of foreign direct investment; this happen in midst of weak corporate fundamentals and deteriorating economic issues. This had a huge impact in India, making it crash along with the bond market. 5. Weak BoP can affect India in regards to inflation and its Rupee exchange rate...
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...winding-up and so provides a lesser degree of protection to depositors. SLR- Statutory liquidity ratio It is the amount of liquid assets, such as cash, precious metals or other approved securities, that a financial institution must maintain as reserves other than the cash with the Central Bank. The statutory liquidity ratio is a term most commonly used in India. The maximum and minimum limits for the SLR are 40% and 25% respectively in India CRR-Cash Reserve Ratio The reserve requirement (or cash reserve ratio) is a central bank regulation that sets the minimum reserves each commercial bank must hold (rather than lend out) of customer deposits and notes. It is normally in the form of cash stored physically in a bank vault (vault cash) or deposits made with a central bank. The CRR ratio in india is 6% Repo Rate Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive. Current Repo Rate in India is 8.5% Reverse Repo Rate Reverse Repo rate is the rate at which Reserve Bank of...
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