RESERVE BANK OF INDIA (RBI) - History, Meaning, Organisational set-up of RBI, Functions, Measures for dealing with the covid-19 pandemic.

HISTORY 

     The Central Bank of the country i.e , RBI was established on 1st April 1935 under RBI Act, 1934 . A series of efforts were made in past for establishment of central bank for the country but success was achieved in 1935. The first effort was made in 1773 by Waron Hasting, Governor of Bengal for establishment of General Bank in Bengal and Bihar but could not succeed .  A major success was achieved not established Central Bank in the Country but for the establishment of largest Commercial bank in the country in 1920 by amalgamation of three presidency banks i.e , Presidency bank of Bombay, Madras and Calcutta  and establishment of new bank called as Imperial bank of India. 

     In 1931, member of Royal Commission of Finance and Currency proposed for the establishment of State Bank of India, which will be responsible for both commercial and central banking in the country but in view as it was the period for outbreak of 1st world war . Due to India constitutional reform in 1933, which made obligatory , the transfer p responsibility from British Govt. to India hands, the Reserve Bank of India was constituted with the provision of the act containing 58 Sections and was inaugurated on 1st April 1935.

MEANING

    Reserve bank of india is fully owned by GOI. It originally started as shareholders bank with fully paid up capital of 5 crore divided into share of 100 each of this  4,97,800 well subscribed by private shareholders and  2,20,000 were subscribed by the Central Govt. The share capital of the bank remained uncharged till date.

    The preamble of Reserve Bank of India describes the basic function of the Reserve bank as :

    " ......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 a country to its advantages.

ORGANISATIONAL SET-UP OF RBI

  1. Issue Department

   2. Banking Department

   3. Department of Banking Development

   4. Department of operations

   5. Agricultural credit Department

   6. Exchange control Department

   7. Industrial finance Department

   8. Non-Banking Comparison Department

   9. Legal Department

  10. Department of Reserve and states

  11. Department of Govt. and Bank a/c's

  12. Department of currency management

  13. Department of Expenditure of budgetary cost.

  14. Rural Banking and credit Dept.

  15. Credit planning cell

  16. Department of Economic analysis and policy

  17. Inspection Department

  18. Promises Department

  19. Department of Administration and Personnel

  20. Management service Department

  21. RBI service Board

  22. Central Record and Document Centre

  23. Secretary's Department

  24. Training establishment

FUNCTIONS OF RESERVE BANK OF INDIA

CENTRAL BANKING

    (a) Monopoly of Note Issue :  The most important function of a Central Bank is to maintain the stability of the monetary standard, under section 22 of the RBI Act ; the bank has the sole right of note issue with the exception of rupee one notes , coins and small coins which are issued by Ministry of Finance , Govt of India . These notes are printed and issued by its Issue Department . 

   (b) Bankers to the government : like all other Central banks in the world , the RBI also fulfill it's functions as a banker to the Central and state Govt. It render the following services : 

    1. It accepts deposits of state and central govt, on which it pays no interest.

    2. It receives and makes payments on behalf of the Central and state Government.

   3.  It buys and sell govt. Securities in the market.

   4. It carries out exchange , remittance and other banking operations on behalf of these government.

  5. Managing public debts and issue of new loans and Treasury bills of the central government

(c).  BANKER'S BANK : All the commercial banks, cooperative banks and foreign banks in the country have to maintain specific % of cash in the form of reserve with the RBI . The RBI give financial assistance to the banks in the form of re-discounting of bills, the working of commercial banks, they issue license for opening and branch expansion , inspection of books, approval for appointment of chairman and directors, mergers of banks etc.

(d) LENDER OF THE LAST RESORT : RBI fulfills the needs of commercial banks by granting them short term loans against eligible securities . It acts as lender of last resort and as an emergency bank.

(e) CLEARING HOUSE : Before the establishment of RBI , the clearing house function was performed by the Imperial Bank. There were only four clearing houses  in Mumbai, Calcutta, Delhi and Chennai. Now, there are more than two hundred clearing houses and remaining is managed by SBI and it's group. 

PROMOTIONAL FUNCTION :

(a) NATIONAL INDUSTRIAL CREDIT FUNDS : The funds was created in 1964 for providing long term credit to the lending financial institutions.

(b) INDUSTRIAL DEVELOPMENT BANK OF INDIA : IBRD was established as the main financial institution in 1964 for financing industries is the country. It is wholly owned subsidiary of the Reserve Bank of India and provide direct assistance to medium and large industrial contain by purchasing / underwriting their shares and debenture.

SUPERVISORY FUNCTION :

(a) AUDIT : All the schedule commercial banks are required to get their Balance sheet, profit and loss account duly audited by the approved auditors of the reserve bank.

(b) LICENSING OF BANK : As per the statutory provision, every company setting banking business in India has to take obtain license form RB. Before approving the license the Reserve bank scrutinize whether the minimum requirements of capital , reserve and liquid assets are fulfilled by the company or not. 

MEASURES FOR DEALING WITH THE COVID-19 PANDEMIC :

1. EXTENSION OF REALISATION PERIOD OF EXPORT PROCEEDS : presently value of the goods or software exports made by the exporters is required to be realised fully and repatriated to the country within a period of 9 months from the date of exports. In view of the disruption caused by the covid -19 pandemic, the time period for realization and repatriation of export proceeds for exports made up to or on July 31, 2020 has been extended to 15 months from the date of export. The measure will enable the exporters to realise their receipt, especially from covid-19 affected countries within the extended period and also provide greater flexibility yo the exporter to negotiate future contracts with buyers abroad.

2. REVIEW OF LIMITS OF WAY AND MEANS ADVANCES OF STATES/UTs :  Reserve bank has constituted an advisory Committee to review the ways and means limits for state govt and union territories , pending submission of the final recommendation by the committee, it has been decided to increase WMA limit by 30% from the existing limits for all states / UTs to enable the state govt to tide over the situation arising from the outbreak of the covid -19 pandemic. The revised limits will come into force with effect from 1t April , 2020 and will be valid tl september 30, 2020.

3. IMPLEMENTATION PF COUNTER CYLICAL CAPITAL BUFFER : The framework on counter cyclical capital buffer (CCyB) was put in place by the RBI in terms of the guidelines inssued on February 5, 2015 wherein it was advised the CCyB would be activated as and when the circumstances warranted , and that the decision would normally be pre-announced.

4. RBI MAY EXTEND MORATORIUM ON BANK LOANS BY 90 MORE DAYS : With further extension of the nationwide lockdown , the RBI is considering a proposal for extending 3 months to help people and industry impacted by ongoing lockdown to contain covid -19.

5. The govt. Extended the period of lockdown till 31st may with distributing the areas in 5 zone i.e  RED ZONE, ORANGE ZONE , GREEN ZONE , BUFFER ZONE , CONTAINMENT ZONE. " All commercial banks ( including regional rural banks, small finance banks and local area banks) , cooperative banks, all Indian financial Institutions and NBFC's ( Including housing finance companies and micro- finance Institution )  ( "lending Institutions") are being permitted to allow a moratorium of 3 months on payments of Installment in respect of all term loans outstanding as on March 1st 2020 " , the RBI had said.

6. The loan EMI payments will re-start only once the moratorium time period of 3 month expire.

7. RBI Governor SHAKTIKANTA DAS on Saturday held a meeting with public and private sectors banks where the issue of loans moratorium was also reviewed. 

8. Credit flows to different sectors of the economy , including liquidity to non-banking financial companies, microfinance Institution, housing finance companies, mutual funds etc and post lockdown credit flows including provision of working capital with special focus on credit flow to MSME's were also deliberated.

9. The current repo rate of RBI as on 27 march, 2020 is 4.40% .

10. The current reverse repo rate as on 17 April , 2020 is 3.75 % .