Central Banking

Points covered

Central bank- Meaning,

Definitions
Origin, History & Structure
Functions
Monetary policies & objectives
Qualitative & Quantitative
Policies
Conclusion
Central Bank

A central bank is a lender of last resort

-- Prof.Hawtry

It is a bank of banker
-- Samuelson

Bank which has monopoly over note

issue
-- Vera Smith

Central bank is the governments bank

-- Sayers
Central banking

An institution charged with the

responsibility of managing the
expansion and contraction of the
volume of money in the interest of
general public welfare
Prof.Kent

One which constitute the apex of

the monetary and banking structure
of its country
Prof.M.H.De Kock
RBI and its origin

Commenced Operations on 1st

April 1935 as per The Reserve
Bank of India Act, 1934 (II of 1934)
and Nationalise on 1st Jan 1949.

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.
Structure of Banking in India

Reserve Bank

Commercial Bank Co-operative Bank

-Public Sector Bank -State Co-op bank

-Private Sector bank -Central Co-op Bank

-Regional Rural Bank -Primary Co-op Soc

Functional Chart
Organisational Structure
 The RBI has a Central Board and four local Board.
The Central Board of Directors governs the affair
of the RBI.
The Board consist of Official Directors and Non-
Official Directors who are appointed by the
Government Of India.
In order to assist the Central Board , it has
delegated some of its functions to the committee
of the Central Board which comprises of the
Governor, Deputy Governors and the Directors
who represent or resist in the locality in which the
meeting is being held.
The Organization Structure of RBI is divided into 2
parts , that is the internal organization and the
external organization.
RBI
Functions of RBI

Bank of Note issue

The Governments Bank
Bankers Bank
Custodian Foreign Exchange
Reserves for country
Lender of last resort and bank of
rediscounting.
Controller of credit
 Monitory authority.
Regulator and supervisor of the
financial system.
Manager of foreign exchange.

issuer of currency.

Developmental role.

Related functions:

Banker to the government

Bankers to bank
RBI ACT 1934
Monetary Policy

Monetary policy is essentially a

programme of action
undertaken by central bank,to
control and regulate the supply
of money with the public and
flow of credit with a view of
achieving predetermined
macroeconomic goals.
-Macroeconomics-Theory & policy-D.N.Dwivedi-Tata Magraw Hill comp,
Instruments of Monetary
Policy (Economic variables)
Weapons of Monetary controls
Nuts & Bolts of Monetary policy
-- Samuelson & Nordhaus

Quantitative credit control (General

credit control) Control of quantity or
volume of money
Qualitative credit control ( Selective
credit control) Quality
/Purpose/Direction of credit control
Objectives of Credit Control

To stabilise internal price level

To stabilise the rate of foreign
exchange
To protect the outflow of gold
To control business cycles
To meet business needs
To have growth & stability
 Credit Control Measures

Quantitative Qualitative
-Bank Rate -Marginal Requirement
-Open Mkt. Operations -Rationing of Credit
-Variation in C R R -Cost. Credit Regulation
-S L R -Issue of Directives
-P L R -Moral Suasion
-Publicity
-Direct Action
Terms

CRR Cash Reserve Ratio is the

percentage of bank deposits (reserves and
surplus) which are statutorily parked with
the RBI as reserve.

SLR Statutory Liquidity Ratio it is the

proportion of total deposits which banks are
required to maintained in liquid form of cash
reserve, gold and government bond in
addition to CRR to prevent commercial
banks from liquidating assets when CRR is
raised.
Terms
Prime Lending Rate (PLR) is that rate of
interest at which a bank lends to its best
customers.

Repo Rate is the rate at which the RBI

buys government securities from the
market to infuse liquidity in the system

Reverse Repo rateis the rate at which the

RBI absorbs excess bank funds by selling
government securities in the market.
As on date prevailing Rates
of Quantitative Measures

CRR-

SLR

PLR

Source- RBI website

 Credit Control Measures

Quantitative Qualitative
-Bank Rate -Marginal Requirement
-Open Mkt. Operations -Rationing of Credit
-Variation in C R R -Cost. Credit Regulation
-S L R -Issue of Directives
-P L R -Moral Suasion
-Publicity
-Direct Action
Difference Between
Qualitative & Quantitative.
Quantitative Qualitative
Total Volume or Quality or use or
Quantity of Money purpose of credit
It controls credit It controls credit
indirectly directly
Lenders are controlled Lenders and
not the borrowers borrowers both are
It is known as general influenced
credit control It is known as
Instruments used are selective credit control
bank rate, open mkt. Instruments are
oprt., CRR etc variations in marg req,
Consumer credit regl,
direct action etc
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.

Source- RBI website

Conclusion

Central bank plays important

role in achieving economic
growth of a developing country.
It promotes economic growth
with stability.
It helps in attaining full
employment of resources, in
overcoming balance of payment
disequilibrium & in stabilizing
exchange rates.
Bibliography

Website : Reserve bank of

India
Macro-economics Theory-
M.L.Jhingan,11 edition, Vrinda Publication pg 317-344
th

Macroeconomics- Theory &

Policy D. N. Dwivedi, Tata McGraw-Hill
comp. pg 527-542

Economics Naik & Swaminathan