Role of Reserve Bank of India Legal Banking Jaiib

The RBI provides the major role in Indian banking system. They are —-
Monetary Authority: RBI as a monetary authority had controlled the supply of money in the economy by way of its control over interest rates in order to maintain price stability and achieve high economic growth. The main objectives of monetary policy were: —

  • To stabilize the exchange rate
  • To maintain the healthy balance of payment
  • To attain financial stability
  • To control inflation
  • To strengthen the banking system.

Quantitative measures of credit control:

Bank Rate Policy:

The bank rate is an official interest rate at which RBI rediscounts bills held by commercial banks. For controlling credit, inflation, and money supply RBI will increase the bank rate. Current bank rate – 9% – 9.55%.

Open Market Operation:

OMO aims to direct sales and purchase of securities and bills in the open market by RBI which aims to control credit.

Cash Reserve Ratio:

CRR refers to that amount of deposits in the commercial bank which it has to keep with RBI as the reserve. Current CRR – 4%.

Statutory Liquidity Ratio:

SLR refers to that portion of deposits kept itself as liquid assets. Current SLR – 20%.

Repo Rate:

Repo rate means a rate decided by the RBI for the purpose of lending some money to the banks for a short-term period. When repo rate increases from RBI becomes more expensive. Current repo rate – 6%.

Reverse Repo Rate:

Reverse repo rate is the rate in which RBI borrows money from the bank. When reverse repo rate increases become getting more rate of interest from RBI. Current reverse repo rate – 5.75%.

Qualitative measures of credit control:

The qualitative measures were used by RBI for selective purposes only. They are- Margin requirements, Consumer credit regulations, Guidelines, Rationing of credit, Moral suasion.

Full Course Videos in Hindi English
Check Here
jaiib ppb short notes part 1
Check Here
jaiib exam free study material
Check here
jaiib study material pdf notes 2023
Get Tests Here
how to prepare for ppb
Check Here

The issuer of Currency:

The RBI can issue an exchange currency, coins and notes and destroys the same when they are not fit for the society. The RBI shall have the sole authority to issue currency in India. Their objectives is to issue currency to the public at large and to maintain the currency, reserves and credit system in India. Every note issued by the RBI contains its name on the top along with the governor signature below promissory clause.

The issuer of Banking Licence:

Every bank should have to obtain a license from RBI for the purpose of conducting banking business in RBI under RBI act 1934. The RBI should issue a license to those entities in the private sector, public sector and non-banking financial institutions (NBFC) under wholly-owned Non-Operative Financial Holding Company (NOFHC). But the entities who are going to apply for a license in RBI should run their business effectively for 10 years. The RBI had granted the license for 23 new banks up to 2014. For example – Bandhan bank, Airtel payment bank, Equitas holdings, etc.

Bankers Bank:

RBI was acted as bankers for all the banks in India. As per this role, RBI was enabled smooth and swift clearing settlements of interbank transactions. Also, it was provided effective means of fund transfers for banks and enabled banks to maintain their accounts with them for statutory reserve requirements and maintenance of transaction balances.
Most importantly Why RBI called as bankers’ bank? — Because it provides loans to banks, accepts deposits from banks and also rediscount the bills if banks.

Lender of Last Resort:

The banks could borrow some of the money from RBI by way of keeping securities as collateral or any other arrangement at the time of their need for the purpose of financial help. Thus, the RBI was working as a lender of the last resorts (LORL) for banks.

Bank and Debt Manager of Government:

The RBI kept deposits of both central and state government as a deposit free of interest. They had received and made payment on behalf of the government. They had carried out the government exchange remittances and other banking operations. They helped both central and state government to float new loans and manage public debt. As a whole, the RBI was acted as an advisor to the government on all monetary and banking functions.

The controller of Credit:

Credit control should be a major weapon used by RBI to control demand and supply of money in the economy. Some of the credit control techniques are —-

Open market operations:

OMO aims to direct sales and purchase of securities and bills in the open market by RBI which aims to control credit.

Credit ceiling:

Under this techniques, RBI had issued prior information or direction that loans to the commercial banks would be given up to a certain limit. In this case, the commercial bank would be tight in advancing loans to the public.

Acts As Clearing House:

The RBI was acted as a clearinghouse for settlement of banking transactions. And also it was a member bank of the Asian Clearing Union. The clearinghouse had facilitated the exchange of instruments and processing of payments instructions at a central point among the participating banks. Now RBI would be contained 14 major clearing houses of the country.

Manager of Foreign Exchange:

The RBI was required to maintain external value of Rupee. For this goals, it was acted as a custodian of FOREX. This was administered by Foreign Exchange Management Act 1999 (FEMA). On a given day, the foreign exchange rate would reflect the demand for and supply of foreign exchange arising from trade and capital transactions. Their Financial Markets Department had participated in the foreign exchange by undertaking sales or purchases of foreign currency to reduce volatility in periods of excess demand for/supply of foreign currency.


Please enter your comment!
Please enter your name here

🤩 🥳 JAIIB NEW BATCH START 🥳 🤩spot_img
🤩 🥳 JAIIB CAIIB CLASSES 🥳 🤩spot_img



Continue to the category


JAIIB FREE NOTES OF PPB 2024 | BANKING OMBUDSMAN SCHEME In this article, we will discuss the Banking Ombudsman Scheme (which falls under the syllabus...


FREE BANK PROMOTION NOTES FOR 2024 | RISK MANAGEMENT So, the next session has already begun & there should not be anything that does not...


FREE RISK MANAGEMENT MOCK TEST 2024 | CAIIB 2024 This post contains IIBF CAIIB’s paper - Risk Management Mock Tests as per the CAIIB Syllabus...

JAIIB Principles and Practices of Banking Study Material Live Class Previous Year Questions Part 12

JAIIB PPB STUDY MATERIAL LIVE CLASS | PREVIOUS YEAR QUESTIONS PART 12   JAIIB exam is one of the premium flagship courses offered by IIBF twice...