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RBI and Basic Economic terms

Introduction
The​ ​Reserve​ ​Bank​ ​of​ ​India​ ​is​ ​India’s​ ​central​ ​banking​ ​institution,​ ​which​ ​controls the​ ​monetary​ ​policy​ ​of​ ​the​ ​Indian​ ​rupee.​ ​It​ ​commenced​ ​its​ ​operations​ ​on​ ​1​ ​April1935​ ​during​ ​the​ ​British​ ​Rule​ ​in​ ​accordance​ ​with​ ​the​ ​provisions​ ​of​ ​the​ ​Reserve Bank​ ​of​ ​India​ ​Act,​ ​1934.
The​ ​RBI​ ​plays​ ​an​ ​important​ ​part​ ​in​ ​the​ ​Development​ ​Strategy​ ​of​ ​the​ ​Government of​ ​India.​ ​It​ ​is​ ​a​ ​member​ ​bank​ ​of​ ​the​ ​Asian​ ​Clearing​ ​Union.
1.The​ ​general​ ​superintendence​ ​and​ ​direction​ ​of​ ​the​ ​RBI​ ​is​ ​entrusted​ ​with​ ​the​ ​21- member​ ​Central​ ​Board​ ​of​ ​Directors:-
The​ ​Governor,
4​ ​Deputy​ ​Governors,
2​ ​Finance​ ​Ministry​ ​representatives,
10​ ​government-nominated​ ​directors​ ​to​ ​represent​ ​important​ ​elements​ ​from​ ​India’s economy,
And​ ​4​ ​directors​ ​to​ ​represent​ ​local​ ​boards​ ​headquartered​ ​at​ ​Mumbai,​ ​Kolkata,
Chennai​ ​and​ ​New​ ​Delhi.​ ​Each​ ​of​ ​these​ ​local​ ​boards​ ​consists​ ​of​ ​5​ ​members​ ​who
represent​ ​regional​ ​interests,​ ​and​ ​the​ ​interests​ ​of​ ​co-operative​ ​and​ ​indigenous​ ​banks.
2)​ ​Points​ ​to​ ​remember:
a)​ ​It​ ​was​ ​established​ ​in​ ​April​ ​1935.
b)​ ​It​ ​was​ ​nationalized​ ​in​ ​1949.
c)​ ​The​ ​first​ ​governor​ ​of​ ​RBI​ ​was​ ​Sir​ ​Osborne​ ​Smith.
d)​ ​The​ ​first​ ​Indian​ ​governor​ ​of​ ​RBI​ ​was​ ​Shri​ ​CD​ ​deshmukh.
e)​ ​RBI​ ​can​ ​issue​ ​note​ ​up​ ​to​ ​10000.
f)​ ​​ ​head​ ​quarter​ ​of​ ​RBI​ ​is​ ​in​ ​MUMBAI.
​​
Functions​ ​of​ ​the​ ​RBI-
1.​ ​MONETARY​ ​AUTHORITY​ ​OF​ ​INDIA ​ISSUE​ ​OF​ ​CURRENCY
​2.BANKER​ ​AND​ ​DEBT​ ​MANAGER​ ​TO​ ​THE​ ​GOVERNMENT
3.​ ​BANKER’S​ ​BANK
4.REGULATOR​ ​OF​ ​BANKING​ ​SYSTEM
5.MANAGER​ ​OF​ ​FOREIGN​ ​EXCHANGE
​REGULATOR​ ​AND​ ​SUPERVISOR​ ​of​ ​the​ ​payment​ ​and​ ​settlement system
6.DEVELOPMENTAL​ ​ROLE
A.RBI​ ​was​ ​setup​ ​on​ ​the​ ​basis​ ​of​ ​the​ ​recommendation​ ​of​ ​HILTON​ ​YOUNG COMMISSION.
B.​ ​Number​ ​of​ ​regional​ ​offices​ ​of​ ​RBI​ ​is​ ​28.
The​ ​bank​ ​has​ ​two​ ​training​ ​colleges​ ​for​ ​its​ ​officers:
Reserve​ ​Bank​ ​Staff​ ​College​ ​Chennai​ ​and​ ​College​ ​of​ ​Agricultural​ ​Banking​ ​at​ ​Pune.
C.Dr.​ ​Manmohan​ ​singh​ ​is​ ​the​ ​only​ ​person​ ​who​ ​was​ ​PM​ ​and​ ​RBI governor.
D.​ ​The​ ​national​ ​economy​ ​came​ ​down​ ​in​ ​July​ ​1991​ ​and​ ​the​ ​Indian​ ​rupee​ ​was devalued.​ ​The​ ​currency​ ​lost​ ​18%​ ​relative​ ​to​ ​the​ ​US​ ​dollar,​ ​and​ ​the​ ​Narsimham Committee​ ​advised​ ​restructuring​ ​the​ ​financial​ ​sector​ ​by​ ​a​ ​temporal​ ​reduced​ ​reserve ratio​ ​as​ ​well​ ​as​ ​the​ ​statutory​ ​liquidity​ ​ratio.
Current​ ​governor
​The​ ​Governor​ ​–​ ​Shaktikant Das
TERMINOLOGIES​ ​AND​ ​DEFINITION
1.​Bank​ ​rate​​ ​is​ ​the​ ​rate​ ​charged​ ​by​ ​the​ ​central​ ​bank​ ​for​ ​lending​ ​funds​ ​to​ ​commercial​ ​banks. Description:​ ​Bank​ ​rates​ ​influence​ ​lending​ ​rates​ ​of​ ​commercial​ ​banks.​ ​Higher​ ​bank​ ​rate​ ​will translate​ ​to​ ​higher​ ​lending​ ​rates​ ​by​ ​the​ ​banks.​ ​In​ ​order​ ​to​ ​curb​ ​liquidity,​ ​the​ ​central​ ​bank​ ​can
resort​ ​to​ ​raising​ ​the​ ​bank​ ​rate​ ​and​ ​vice​ ​versa.
2.​Repo​ ​rate ​​is​ ​the​ ​rate​ ​at​ ​which​ ​the​ ​central​ ​bank​ ​of​ ​a​ ​country​ ​(Reserve​ ​Bank​ ​of​ ​India​ ​in​ ​case​ ​of India)​ ​lends​ ​money​ ​to​ ​commercial​ ​banks​ ​in​ ​the​ ​event​ ​of​ ​any​ ​shortfall​ ​of​ ​funds.​ ​Repo​ ​rate​ ​is​ ​used by​ ​monetary​ ​authorities​ ​to​ ​control​ ​inflation.
Description:​ ​In​ ​the​ ​event​ ​of​ ​inflation,​ ​central​ ​banks​ ​increase​ ​repo​ ​rate​ ​as​ ​this​ ​acts​ ​as​ ​a disincentive​ ​for​ ​banks​ ​to​ ​borrow​ ​from​ ​the​ ​central​ ​bank.​ ​This​ ​ultimately​ ​reduces​ ​the​ ​money supply​ ​in​ ​the​ ​economy​ ​and​ ​thus​ ​helps​ ​in​ ​arresting​ ​inflation.
3.​Reverse​ ​repo​​ ​rate ​is​ ​the​ ​rate​ ​at​ ​which​ ​the​ ​central​ ​bank​ ​of​ ​a​ ​country​ ​(Reserve​ ​Bank​ ​of​ ​India​ ​in case​ ​of​ ​India)​ ​borrows​ ​money​ ​from​ ​commercial​ ​banks​ ​within​ ​the​ ​country.​ ​It​ ​is​ ​a​ ​monetary​ ​policy instrument​ ​which​ ​can​ ​be​ ​used​ ​to​ ​control​ ​the​ ​money​ ​supply​ ​in​ ​the​ ​country.
Description:​ ​An​ ​increase​ ​in​ ​the​ ​reverse​ ​repo​ ​rate​ ​will​ ​decrease​ ​the​ ​money​ ​supply​ ​and vice-versa,​ ​other​ ​things​ ​remaining​ ​constant.​ ​An​ ​increase​ ​in​ ​reverse​ ​repo​ ​rate​ ​means​ ​that commercial​ ​banks​ ​will​ ​get​ ​more​ ​incentives​ ​to​ ​park​ ​their​ ​funds​ ​with​ ​the​ ​RBI,​ ​thereby​ ​decreasing the​ ​supply​ ​of​ ​money​ ​in​ ​the​ ​market.
4.​CRR​ ​is​ ​a​ ​cash​ ​reserve​ ​ratio​​ ​and​ ​SLR​ ​is​ ​statutory​ ​liquidity​ ​ratio.​ ​Under​ ​CRR​ ​a​ ​certain percentage​ ​of​ ​the​ ​total​ ​bank​ ​deposits​ ​has​ ​to​ ​be​ ​kept​ ​in​ ​the​ ​current​ ​account​ ​with​ ​RBI​ ​which means​ ​banks​ ​do​ ​not​ ​have​ ​access​ ​to​ ​that​ ​much​ ​amount​ ​for​ ​any​ ​economic​ ​activity​ ​or​ ​commercial
activity.
5.​Statutory​ ​liquidity​ ​ratio​ ​(SLR)​​ ​is​ ​the​ ​Indian​ ​government​ ​term​ ​for​ ​reserve​ ​requirement​ ​that​ ​the commercial​ ​banks​ ​in​ ​India​ ​require​ ​to​ ​maintain​ ​in​ ​the​ ​form​ ​of​ ​gold,​ ​government​ ​approved securities​ ​before​ ​providing​ ​credit​ ​to​ ​the​ ​customers.
7.​Marginal​ ​Standing​ ​Facility​ ​(MSF​)​ ​rate​ ​refers​ ​to​ ​the​ ​rate​ ​at​ ​which​ ​the​ ​scheduled​ ​banks​ ​can borrow​ ​funds​ ​overnight​ ​from​ ​RBI​ ​against​ ​government​ ​securities.​ ​MSF​ ​is​ ​a​ ​very​ ​short​ ​term borrowing​ ​scheme​ ​for​ ​scheduled​ ​commercial​ ​banks.
Some​ ​Important​ ​Questions
1.​ ​When​ ​did​ ​Reserve​ ​Bank​ ​of​ ​India​ ​(RBI)​ ​formed?
​Answer:​ ​1935​ ​April​ ​1
2.​ ​When​ ​did​ ​Reserve​ ​Bank​ ​of​ ​India​ ​(RBI)​ ​Nationalized?
​Answer:​ ​1949
3.​ ​Where​ ​was​ ​the​ ​first​ ​Headquarters​ ​of​ ​Reserve​ ​Bank​ ​of​ ​India​ ​(RBI)?
​Answer:​ ​Kolkata
4.​ ​When​ ​did​ ​the​ ​Headquarters​ ​of​ ​Reserve​ ​Bank​ ​of​ ​India​ ​(RBI)​ ​moved​ ​to
Mumbai?
​Answer:​ ​1937
5.​ ​Who​ ​was​ ​the​ ​First​ ​Reserve​ ​Bank​ ​of​ ​India​ ​(RBI)​ ​Governor?
​Answer:​ ​Sir​ ​Osborne​ ​Smith
6.​ ​Who​ ​was​ ​the​ ​first​ ​Indian​ ​RBI​ ​Governor?
​Answer:​ ​C.D.Deshmukh
7.​ ​Which​ ​Commission​ ​recommended​ ​the​ ​formation​ ​of​ ​Reserve​ ​Bank​ ​of​ ​India
(RBI)?
​Answer:​ ​Hilton​ ​Young​ ​Commission​ ​(Royal​ ​commission)
8.​ ​Which​ ​is​ ​the​ ​central​ ​bank​ ​in​ ​India?
Answer:​ ​RBI
9.​ ​Which​ ​bank​ ​is​ ​known​ ​as​ ​Banker’s​ ​Bank?
​Answer:​ ​Reserve​ ​Bank​ ​of​ ​India​ ​(RBI)
10.​ ​Who​ ​is​ ​the​ ​present​ ​Governor​ ​of​ ​RBI?
​Answer:​ ​Urjit​ ​Patel
11.​ ​Who​ ​introduced​ ​the​ ​Banking​ ​Ombudsman​ ​Scheme?
​Answer:​ ​Reserve​ ​Bank​ ​of​ ​India
12.​ ​At​ ​which​ ​of​ ​the​ ​following​ ​cities​ ​is​ ​the​ ​Head​ ​Office​ ​of​ ​Reserve​ ​Bank​ ​of
India​ ​located?
Answer:​ ​Mumbai