INDIAN FINANCIAL SYSTEM CIA-III RBI AND IT’S CREDIT CONTROL MEASURES

POINTS COVERED CENTRAL BANK-MEANING AND DEFINITION ORIGIN, HISTORY AND STRUCTURE QUANTITATIVE AND QUALITATIVE MEASURES 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 government’s bank” -- Sayers

RBI AND IT’S 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 RBI RESERVE BANK OF INDIA 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

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

1. GENERAL OR QUANTITATIVE CREDIT CONTROL BANK RATE:- -SECTION 49 OF THE RESERVE BANK OF INDIA ACT -”THE STANDARD RATE AT WHICH THE BANK IS PREPARED TO BUY OR DISCOUNT BILLS OF EXCHANGE OR OTHER COMMERCIAL PAPERS ELIGIBLE FOR PURCHASE UNDER THIS ACT.” -PACE SETTER TO OTHER MARKETS -CURRENT BANK RATE-6%

VARIABLE RESERVE RATIO:- -SECTION 42(1) -DISPARITY BETWEEN DEMAND LIABILITIES AND TIME LIABILITIES -WHAT IS CRR? -CURRENT CRR-5%

STATUTORY LIQUIDITY REQUIREMENTS:- -TO OFFSET THE IMPACT OF VARIABLE RESERVE RATIO -SECTION 24 -LIQUID ASSETS-CASH, GOLD AND UNENCUMBERED SECURITIES.

SYSTEM OF DIFFERENTIAL RATES:- -SLAB BASIS -BASIC QUOTA TO A SPECIFIC PERCENTAGE OF STATUTORY REQUIREMENTS

NET LIQUIDITY RATIO (N.L.R.):- -FORMULA -EVERY PERCENTAGE DROP IN THE RATIO, THE COST OF BORROWING FROM RBI ON THE ENTIRE AMOUNT WAS TO GO UP BY ½% -CURRENT N.L.R.

OPEN MARKET OPERATIONS:- -PURCHASE AND SALE, BY CENTRAL BANK, OF A VARIETY OF ASSETS SUCH AS GOLD, GOVERNMENT SECURITIES, FOREIGN EXCHANGE AND EVEN COMPANY SHARES. -INSTRUMENTS OF MONETARY POLICY AND ALSO OF PUBLIC DEBT.

MINIMUM MARGIN FOR LENDING AGAINST SPECIFIC SECURITIES:- 2. SELECTIVE OR QUALITATIVE CREDIT CONTROL MINIMUM MARGIN FOR LENDING AGAINST SPECIFIC SECURITIES:- -SINCE 1955 -RESTRICT ADVANCES AGAINST SPECIFIC SECURITIES -PADDY, RICE, PULSES, COTTON, TEXTILES.

CEILING ON THE AMOUNT OF CREDIT FOR CERTAIN PURPOSE:- -CREDIT AUTHORIZATION SCHEME(CAS)

DISCRIMINATORY RATES OF INTEREST ON CERTAIN TYPES OF ADVANCES MORAL SUASION:- -PERSUASION -NO LEGAL COMPULSION

DIRECT ACTION:- -PERIODIC LETTERS -DISCUSSIONS PUBLICITY:- -CONFERENCE CONVENED BY THE GOVERNOR OF INDIA.

DIFFERENCE BETWEEN QUALITATIVE & QUANTITATIVE. Total Volume or Quantity of Money It controls credit indirectly Lenders are controlled not the borrowers It is known as general credit control Instruments used are bank rate, open market operations., CRR etc Qualitative Quality or use or purpose of credit It controls credit directly Lenders and borrowers both are influenced It is known as selective credit control Instruments are variations in market requlations, Consumer credit regulation, direct action etc

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.

THANK YOU KARAN JAIN-08D1251 PARAG JHAVER-08D1252 PAVAN S.-08D1253 PRANSHU JAIN-08D1254 PRATIK JAIN-08D1255 RACHIT VAKHARIA-08D1256 SANDEEP JAIN-08D1257 SAURAV MEHTA-08D1258 SHEYRAT MAKHIJA-08D1259 SRIVATSA CHAMARIA-08D1260