monetary policy (1)

8/3/2019 Monetary Policy (1)

1/32

MONETARY POLICY


2/32

MONETARY POLICY

MONETARY POLICYPRESENTED BY:

Allam Santosh

Sandeep KumarKumari SoniGowthami Budarapu

Uday ChandraRavi KiranPramod Kumar


3/32

LIST OF CONTENTS RBIs History

RBI Functions

Monitory policy

Functions of Monitory Policy

Credit controls of Monitory Policy

Quantitative credit control

Qualitative credit control


4/32

ORIGINSOFTHE RESERVEBANKOF INDIA 1926: The Royal Commission on Indian Currency and

Finance recommended creation of a central bank forIndia.

1927: A bill to give effect to the above recommendationwas introduced in the Legislative Assembly, but was laterwithdrawn due to lack of agreement among varioussections of people.

1933: The White Paper on Indian Constitutional Reforms

recommended the creation of a Reserve Bank. A freshbill was introduced in the Legislative Assembly.

1934: The Bill was passed and received the GovernorGenerals assent


5/32

ORIGINSOFTHE RESERVEBANKOF INDIA 1935: The Reserve Bank commenced operations as

Indias central bank on April 1 as a private shareholders

bank with a paid up capital of rupees five crore (rupeesfifty million).

1942: The Reserve Bank ceased to be the currencyissuing authority of Burma (now Myanmar).

1947: The Reserve Bank stopped acting as banker tothe Government of Burma.

1948: The Reserve Bank stopped rendering centralbanking services to Pakistan.

1949: The Government of India nationalised the ReserveBank under the Reserve Bank (Transfer of Public

Ownership) Act, 1948.


6/32

RESERVE BANK OF INDIA

The central bank of the country--Reserve Bank of India(RBI).

Established in April 1935 with a share capital of Rs. 5cores On the basis of the recommendations of the HiltonYoung Commission.

The share capital was divided into shares of Rs. 100each Fully paid up which was entirely owned by privateShareholders in the beginning.

The Government held shares of nominal value of Rs.

2,20,000. Reserve Bank of India was nationalized in the year 1949

No of members on central board is 20 (incl. governorand 4 deputy governors)


7/32

FUNCTIONS OF RBI

Monetary policy.

Regulation and supervision of the banking and non-

banking financial institutions, including credit information

companies.Regulation of money, forex and government securities

markets as also certain financial derivatives.

Debt and cash management for Central and StateGovernments.

Management of foreign exchange reserves.


8/32

FUNCTIONS OF RBI

Foreign exchange managementcurrent and capital

account management.

Banker to banks

Banker to the Central and State Governments

Oversight of the payment and settlement systems

Currency management

Developmental role

Research and statistics


9/32

MONETARY POLICY

A macroeconomic policy tool used to influence

interest rates, inflation, and credit availability

through changes in the supply of money

available in the economy.

In India it is also called the Reserve Bank ofIndias Credit Policyas the stress is primarily

on directing credit.


10/32

THEMAINOBJECTIVESOFMONETARYPOLICYIN INDIAARE:

Maintaining price stability

Ensuring adequate flow of credit to the productive

sectors of the economy to support economic growth

Financial stability

The relative emphasis among the objectives varies

from time to time, depending on evolving

macroeconomic developments.


11/32

CREDITCONTROLS

There are two kinds of credit controls:

Quantitative credit controlcontrol the volume

of credit and inflation, indirectly.

Qualitative tools credit controlthey control the

supply of money in selective sectors of theeconomy.


12/32

OBJECTIVESOFCREDITCONTROLS

To obtain stability in the internal price level.

To attain stability in exchange rate.

To stabilize money market of a country.

To eliminate business cycles-inflation and

depression-by controllingSupply of Credit:-

To maximize income, employment and output in acountry.

To meet the financial requirements of an economynot only during normal times but also duringemergency or war.


13/32

Credit Control Measures

Quantitative Qualitative

-Bank Rate -Marginal Requirement

-Open Mkt. Operations -Rationing of Credit

-Variation in CRR -Cost Credit Regulation

-SLR -Issue of Directives

-PLR -Moral Suasion

-Publicity

-Direct Action


14/32

DIFFERENCE BETWEEN

QUALITATIVE & QUANTITATIVE.

Quantitative

Total Volume or Quantityof Money

It controls credit indirectly Lenders are controlled

not the borrowers

It is known as generalcredit control

Instruments used arebank rate, open mkt.oprt., CRR etc

Qualitative

Quality or use or purposeof credit

It controls credit directly Lenders and borrowers

both are influenced

It is known as selectivecredit control

Instruments arevariations in marg req,

Consumer credit regl,direct action etc


15/32

QUANTITATIVECREDITCONTROLS

1) Bank Rate .

2) Open Market Operation (OMO) .

3) Change in Cash Reserve Ratio (CRR).

4) Statutory Liquidity Ratio (SLR).

5) Repo and Reverse repo rate .

Q


16/32

QUALITATIVECREDITCONTROLS

Qualitative system instruments :

1)Selective credit control

2)Rationing of Credit

3) Moral Persuasion

4) Direct Action


17/32

SELECTIVE CREDIT CONTROL

Objective of these controls is to discourage some formsof activities while encouraging others. Such controls areused in respect of agriculture commodities, which aresubject to speculative hoarding and wide price

fluctuation.Ex:-Fixing of maximum limit to be advanced by banks toa particular.Some of the elative credit controls are as follows :

(a) Differential Discount Rates :

The reserve Bank fixes different discounting rates forthe bills of different sectors. The sector for which morecredit is to be made available the exchange billsrediscounted at a lower rate.


18/32

SELECTIVE CREDIT CONTROL

(b) Credit Authorization Scheme :

This scheme was introduced with the objectives ofenforce financial discipline on the larger borrowers andensure that they did not pre-empt scare bank resources.

Through this scheme, the RBI regulate not only thequantum but also the term of credit flows. Under thisscheme, commercial banks are required to obtain RBIs

permission before sanctioning any fresh credit of Rs. Six

crores or more to any single borrower. This limit may bechanged time by time


19/32


20/32


21/32

MORAL PERSUASION

Moral persuasion refers to those cases where theReserve Bank endeavors to achieve its object by making

suitable representations to the banking institutions concerned

and relying on its moral influence and power of persuasion.

RBI can use its more pressure and persuade the commercial

bank to follow its policy.

During inflationary conditions it may request the commercial

banks not to press for frequent loans, to refuse loans to the

customers and to refrain from investing funds in the

unproductive or less productive occupations.


22/32

DIRECTIVEACTION

Under Banking Regulations Act, the RBI is empoweredto initiate direction action against those commercialbanks which ignore its advice.

In such cases RBI can impose restriction on sanctioning

of loans and advances of concerned banks. Winding up of Bank of KARAD(Strong

Scheduled Bank in Western Maharashtra) in 1992because of financial irregularities and putting up of

certain restrictions on the working of Metropolitan Co-operative Bank and these are the examples of directaction initiated by RBI.


23/32

PUBLICITY The RBI may also follow the policy of publicity in order to

make known to the public its views about the credit

expansion or contraction.

It may issue warning to the people and commercial

banks, substantiating its views by facts, figures and

statements, through the media of publicity.

This method , however, is ineffective in the developing

economies where mass illiteracy exists and people do

not understand the implications of the policy

O


24/32

OTHERFUNCTIONS(i)Agriculture Credit :

All matters relating to agriculture credit are looked after by

RBI before the establishment of NABARD in1982. Now all

functions relating to agriculture and rural development are

performed by NABARD.

(ii) Industrial Finance :

The RBI has contributed in the share capital of industrial

finance institutions such as Industrial Finance Corporation of

India, Industrial Development Bank of India, State Finance

Corporations etc. Thus RBI indirectly contributes in the field

of industrial finance.


25/32

OTHERFUNCTIONS

(iii)Publication of Data : The RBI publishes statistics regarding money, price,

finance etc, in its periodicals.

This provides valuable information for Govt., business

and industries. These information are helpful to take

decisions.

The important publications of RBI are the Reserve Bank

of India Annual Report, currency and finance, trends and

progress of Banking etc.

At present, there are more than 100 publications of RBI.


26/32

OTHERFUNCTIONS(iv)Banking Education and Training :

The RBI has been organizing various education andtraining programs for bank employees and officers.Banker Training College Mumbai has been setup by

RBI for the training of Bank officers.

Other important training institutes such as College ofAgriculture Banking (Pune), Reserve Bank staff TrainingCollege (Chennai) etc. had been setup by the RBI.

RBI had also setup regional training centers at Mumbai, Kolkata, Chennai and Delhi.


27/32

OTHERFUNCTIONS(v)Remitting Facility :Reserve Bank Provides remitting

facilities to the central Government, state Governmentand semi-Government institutions free of cost. It alsoprovides this facility to cooperative banks free of cost.

(vi)Conversion of currency : The RBI converts spoiledcurrency in to fresh currency. It also provides facilitiesto convert currency notes into small denominatingcoins.

(vii)To accept Deposits : The RBI accept deposits fromCentral and state Governments institution and

individual persons without paying interest.


28/32

OTHERFUNCTIONS(viii)Transactions with international institutions : All

international economic transactions are being madethrough RBI. RBI opens its accounts in the centralbank of member countries of IMF. It also deals with

IMF, World Bank and other international financialinstitutions.

(ix)Transactions in precious metals : In order to fulfill itsobligations, RBI buys and sells precious metals, gold

coins etc. RBI can borrow funds by mortgaging theseprecious metals.


29/32

OTHERFUNCTIONS(x)Expansion of Banking facilities : RBI has played an

important role in expansion of banking facilities in the

rural areas of the country.

At the end of June, 2001, there are 65,931 bank

branches are situated in country, out of which more

than half of the branches are situated in rural areas.

At the end of 2000, on an average there was only one

bank branches at a population of 5,000 in the country


30/32

CONCLUSION Any way the credit controls are useful to understand the

condition and it is easy to take decisions in order to

control the inflation And their impact on the economic

growth of country.

It also useful to accomplish the task of it`s kind and

important at their concern of study.


31/32

QUESTIONS ?


32/32

THANKYOU

monetary policy (1)

Documents