Escolar Documentos
Profissional Documentos
Cultura Documentos
Reserve Bank of
India and the
banking sector in
India
Submitted by:
Ankit Bohra
Davis N
Kunal Bhagat
Nirmal Kumar J
Shrabani Som
Varun Sharma
13069
13079
13089
13099
13109
13119
Table of Contents
Banking Sector ........................................................................................................................................ 2
Role of Banks in the Economy................................................................................................................. 3
Capital Formation: .............................................................................................................................. 3
Support to the Capital Market: ........................................................................................................... 3
Rupee Loans: ....................................................................................................................................... 3
Foreign Currency Loans: ..................................................................................................................... 4
Subscription to Debentures and Guarantees ..................................................................................... 4
Assistance to Backward Areas: ........................................................................................................... 4
Promotion of New Entrepreneurs: ..................................................................................................... 4
Impact on Corporate Culture: ............................................................................................................. 5
Reserve Bank of India.......................................................................................................................... 6
The main functions of the Reserve Bank of India are: ........................................................................ 6
Issuer of currency................................................................................................................................ 6
Banker to the Government ................................................................................................................. 7
Managing Government Securities ...................................................................................................... 7
Banker to Other Banks ........................................................................................................................ 7
Controller of Money Supply and Credit .............................................................................................. 8
Exchange Manager and Controller ..................................................................................................... 8
Publisher of Monetary Data and Other Data ...................................................................................... 8
Developmental and Promotional role of RBI ...................................................................................... 9
Development of the Financial System ............................................................................................ 9
Development of Agriculture ........................................................................................................... 9
Provision of Industrial Finance ........................................................................................................ 9
Provisions of Training ...................................................................................................................... 9
Collection of Data............................................................................................................................ 9
Publication of the Reports .............................................................................................................. 9
Promotion of Banking Habits .......................................................................................................... 9
Promotion of Export through Refinance ....................................................................................... 10
Conclusion: ............................................................................................................................................ 10
References ............................................................................................................................................ 12
Banking Sectori
The Indian banking industry plays an important role in the economic development of the
country and is the most dominant segment of the financial sector. Banks help channel savings
to investments and encourage economic growth by allocating savings to investments that
have potential to yield higher returns. Indias banking system is a robust one and is classified
into commercial banks and co-operative credit institutions. Commercial banks include
Scheduled commercial banks (SCBs) and non-scheduled commercial banks. SCBs are further
classified into public sector banks (PSBs), private banks, foreign banks and regional rural
banks (RRBs). Co-operative credit institutions include the various co-operative banks.
ii
Rupee Loans:
Rupee loans constitute more than 90 per cent of the total assistance sanctioned and disbursed.
This speaks eloquently on DFIs obsession with term loans to the neglect of other forms of
assistance which are equally important. Term loans unsupplemented by other forms of
assistance had naturally put the borrowers, most of whom are small entrepreneurs, on to a
heavy burden of debt-servicing. Since term finance is just one of the inputs but not everything
for the entrepreneurs, they had to search for other sources and their abortive efforts to secure
other forms of assistance led to sickness in industrial units in many cases.
industrialization and effective utilization of industrial finance by industry. IDBI has created a
special technical assistance fund to support its various promotional activities. Over the years,
the scope of promotional activities has expanded to include programmes for up gradation of
skill of State level development banks and other industrial promotion agencies, conducting
special studies on important issues concerning industrial development, encouraging voluntary
agencies in implementing their programmes for the uplift of rural areas, village an cottage
industries, artisans and other weaker sections of the society.
vi
Issuer of currency
Except for issuing one rupee notes and coins, RBI is the sole authority for the issue of
currency in India. The Indian government issues one rupee notes and coins. Major currency is
in the form of RBI notes, such as notes in the denominations of two, five, ten, twenty, fifty,
one hundred, five hundred, and one thousand. Earlier, notes of higher denominations were
also issued. But, these notes were demonetized to discourage users from indulging in blackmarket operations.
RBI has two departments - the Issue department and Banking department. The issue
department is dedicated to issuing currency. All the currency issued is the monetary liability
of RBI that is backed by assets of equal value held by this department. Assets consist of gold,
coin, bullion, foreign securities, rupee coins, and the governments rupee securities. The
department acquires these assets whenever required by issuing currency. The conditions
governing the composition of these assets determine the nature of the currency standard that
prevails in India.
The Banking department of RBI looks after the banking operations. It takes care of the
currency in circulation and its withdrawal from circulation. Issuing new currency is known as
expansion of currency and withdrawal of currency is known as contraction of currency.
RBI has the authority to statutorily ensure that the scheduled commercial banks deposit a
stipulated ratio of their total net liabilities. This ratio is known as cash reserve ratio [CRR].
However, banks can use these deposits to meet their temporary requirements for interbank
clearing as the maintenance of CRR is calculated based on the average balance over a period.
institutions, financial markets and financial instruments. The sound and efficient financial
system is a precondition of the rapid economic development of the nation. The RBI has
encouraged establishment of main banking and non-banking institutions to cater to the credit
requirements of diverse sectors of the economy.
Development of Agriculture: In an agrarian economy like ours, the RBI has to provide
special attention for the credit need of agriculture and allied activities. It has successfully
rendered service in this direction by increasing the flow of credit to this sector. It has earlier
the Agriculture Refinance and Development Corporation (ARDC) to look after the credit,
National Bank for Agriculture and Rural Development (NABARD) and Regional Rural
Banks (RRBs).
Provision of Industrial Finance: Rapid industrial growth is the key to faster economic
development. In this regard, the adequate and timely availability of credit to small, medium
and large industry is very significant. In this regard the RBI has always been instrumental in
setting up special financial institutions such as ICICI Ltd. IDBI, SIDBI and EXIM BANK
etc.
Provisions of Training: The RBI has always tried to provide essential training to the staff of
the banking industry. The RBI has set up the bankers' training colleges at several places.
National Institute of Bank Management i.e NIBM, Bankers Staff College i.e BSC and
College of Agriculture Banking i.e CAB are few to mention.
Collection of Data: Being the apex monetary authority of the country, the RBI collects
process and disseminates statistical data on several topics. It includes interest rate, inflation,
savings and investments etc. This data proves to be quite useful for researchers and policy
makers.
Publication of the Reports: The Reserve Bank has its separate publication division. This
division collects and publishes data on several sectors of the economy. The reports and
bulletins are regularly published by the RBI. It includes RBI weekly reports, RBI Annual
Report, Report on Trend and Progress of Commercial Banks India., etc. This information is
made available to the public also at cheaper rates.
Promotion of Banking Habits: As an apex organization, the RBI always tries to promote the
banking habits in the country. It institutionalizes savings and takes measures for an expansion
of the banking network. It has set up many institutions such as the Deposit Insurance
Corporation-1962, UTI-1964, IDBI-1964, NABARD-1982, NHB-1988, etc. These
organizations develop and promote banking habits among the people. During economic
reforms it has taken many initiatives for encouraging and promoting banking in India.
Promotion of Export through Refinance: The RBI always tries to encourage the facilities
for providing finance for foreign trade especially exports from India. The Export-Import
Bank of India (EXIM Bank India) and the Export Credit Guarantee Corporation of India
(ECGC) are supported by refinancing their lending for export purpose
Other major roles of RBI in the Indian Economy are:
Economic stability
Economic growth
Conclusion:
Indias financial system has undergone development as part of the economic reform process
that began in 1990. This has resulted in the expansion of both the banking sector and the
stock market. However, Indias banking sector remains relatively small compared with those
of most East Asian economies, and there appears to be scope for further expansion.
Individual banks are also small by international standards. Furthermore, the corporate bond
market is still immature and has not yet started to develop on a significant scale.
Indias rapid growth since 2000 has been accompanied by a rise in the savings and
investment rates. Procurement of external financial resources by businesses has risen sharply,
and bank borrowing has played a significant role. This suggests that external financing can be
expected to remain a significant factor in the maintenance of high economic growth, and that
the continuing development of the banking sec-tor, including the improvement of financial
intermediation capabilities and efficiency with which funds are distributed, will be a priority.
There is also likely to be further growth in the demand for finance for infrastructure
development. In addition to the expansion of bank credit, there is also a need for steps to
maintain soundness, including the improvement of risk management capabilities, and the
reinforcement of regulation and supervision.
Banking reforms introduced since the 1990s have included the easing regulations that
restricted competition, and the introduction of prudential regulations. These changes have
resulted in the entry of private sector banks and foreign banks into the market, leading to
increased competition. To some extent, the reforms have also brought improvements in the
efficiency and soundness of banks and led to the expansion of bank credit. The banking
reform process can be seen as a positive factor that is steadily yielding benefits.
However, many issues remain. Factors affecting the size of the banking sector and the
expansion of credit include the fact that financial savings still account for only a small
percentage of household savings. Furthermore, while there has been an upward trend in the
percentage of credit provided to individuals, there has been a decline in the share going to the
industrial sector. Of particular concern is the stagnation of credit to small and medium
enterprises (SMEs). Improvement in these areas will require action to deal with a number of
structural problems. First, the government should review the statutory liquidity ratio (SLR),
which stipulates the percent-age of deposits that must be invested in government bonds.
Second, improvements are needed in priority sector lending, which are designed to expand
credit to agriculture and SMEs, since banks are unable to secure adequate returns. Third,
India has implemented a financial inclusion policy with the aim of expanding the use of
formal finance, primarily through the expansion of a network of bank branches in the rural
areas. The effectiveness of this policy needs to be improved through diversification.
To increase the size of individual banks, the government should consider measures that will
encourage bank mergers while maintaining a competitive environment. A longer-term
priority will be a review of bank ownership by the government in order to improve the
competitiveness of public sector banks.
Some observers see the fact that the Indian banking sector has never experienced a major
financial crisis as evidence that there are no serious problems. However, the ratio of domestic
credit to GDP is not high by international standards, and the scale of individual banks is
relatively small. There are also characteristic systems, including priority sector lending and
government ownership of banks. Indias rapid growth since 2000 has been ac-companied by
increases in both savings and in-vestment rates. This process has also brought an increase in
external procurement of financial resources. This suggests that external financing plays an
important role in the achievement of high economic growth. Priorities in this context include
the structural expansion of bank credit through the expansion of financial savings, and the
improvement of the efficiency of financial intermediation and the allocation of financial
resources.
These goals will require further improvements in the efficiency of the banking sector, and the
setting of loan and deposit interest rates at levels that reflect market realities. Other essential
steps include a review of the statutory liquidity ratio (SLR) system and priority sector
lending, and the promotion of financial inclusion. When designing financial inclusion
systems, including priority sector lending, greater emphasis will need to be placed on
economic rationality. To expand financial savings, it will also be necessary to focus on
measures to reduce the number of informal sector enterprises, including the expansion of
rural employment. By further developing its banking sector and building a strong financial
system, India should be able to look forward to sustained high growth over many years.
References
i
rbidocs.rbi.org.in/rdocs/Speeches/PDFs/FIBACS130813.pdf
http://en.wikipedia.org/wiki/Banking_in_India
iii
www.herald.co.zw/role-of-banks-in-the-economy/
iv
http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/RBIB140520012.pdf
v
http://rbidocs.rbi.org.in/rdocs/Content/PDFs/FUNCWWE080910.pdf
vi
http://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=OrganizationStructure.htm
ii