[Banking Notes, AHSEC, Class 12, Chapter wise Notes, Reserve Bank of India, Revised Syllabus]
AHSEC CLASS 12 NOTES FOR 2022 - 23 EXAM
SUBJECT: BANKING
Unit – 2: Reserve Bank of India
Short Questions and Answers (1/2 Marks
each)
1. In which year the RBI act was passed?
Ans: The RBI act was passed in 1934.
2. In which year RBI came into
existence or established? 2012
Ans: The RBI came into existence on April 1935.
3. In which year the RBI nationalized
or becomes a state owned institution?
Ans: The RBI was nationalized under the Reserve Bank (Transfer to
public ownership) Act 1948, on January 1, 1949.
4. How many members are there in the
Central Board of the director of the RBI? 2014,
2014
Ans: There are 20 members in the Central Board of Directors. Its head office is located in Mumbai.
5. How many local Boards are there in
the organizations structures of RBI?
Ans: Four local boards located at Kolkata, Mumbai, New Delhi and
Chennai.
6. Who appointed the Governor and the
deputy governor of RBI? 2015
Ans: The Central Government for 5 years.
7. Who is the chairman of the Central
Board?
Ans: The Government is the chairman of the Central Board.
8. Expand SLR and CRR. 2013, 2014, 2016, 2019
Ans: SLR: Statutory Liquidity Ratio and CRR: Cash Reserve Ratio.
Statutory Liquidity ratio of the total
deposits of a bank which it has to maintain with itself in the form of liquid
funds like government securities and cash in hand at any given conditions and
point of time. Present SLR is 19.25%.
All the banks operating in a country,
beside, cash in hand must maintain statutory cash reserve in the Reserve Bank of
India against their time and Demand liabilities which is called cash reserve
ratio. The Cash Reserve Ratio (CRR) refers to the portion of total deposits of
a commercial bank which it has to keep with the RBI in the form of cash
reserves. Present CRR is 4%.
9. Which department of the RBI is
responsible for issuing currency notes?
Ans: The issue department of the RBI is responsible for issuing
currency notes.
10. What is the minimum reserve kept
by the RBI to issue currency notes?
Ans: Minimum reserves of Rs. 200 crore to issue note out of 200
crore Rs. 115 crore is kept in gold coins and bullion.
11. In which year the RBI adopted the
minimum reserves system of note issue? 2015
Ans: In 1956.
12. What types of currency notes
issued by the RBI? 2013
Ans: The RBI issue currency notes of Rs. 2, Rs. 5, Rs. 10, Rs. 20,
Rs. 50, Rs. 100, Rs. 200, Rs. 500 Rs. 2000 denominations. The One Rupee notes
are issued by the Minister of Finance, Government of India.
13. What are the principles of issuing
notes?
Ans: The three principles of issuing notes are Uniformity,
Elasticity and Security.
14. The RBI was originally set up a
private bank/Public Sector Bank.
Ans: Private Bank
15. Which principle is followed to
constitute various departments in RBI?
Ans: ‘Functional specialisation’
16. What is credit authorization
scheme?
Ans: Credit authorization scheme was introduced in 1965 by RBI
under which every scheduled bank is required to obtain prior approval of RBI
before granting any fresh credit exceeding Rs. 1 crore which was increased to
Rs. 2 crores in 1975.
17. How does commercial
bank help in execution of Monetary Policy? 2020
Ans: Commercial bank help in execution of monetary policy by maintaining
CRR and SLR. They also follow the RBI guidelines for granting loans and
advances.
18. Write a note on RBI’s role
in Bank Inspection. 2020
Ans: Inspection of Bank is done by Officers of
Reserve Bank of India as per Banking Regulation Act 1949
and some other laws of Government of India. The main job of the Inspecting
Officers of RBI is to check the Authenticity of
the Audit Report. They also carry some extra work other than carried
out by CAs.
Long Answer Type Questions (Marks: 3/5/8)
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Also Read:
1. HS 12 Banking Chapter wise Notes
2. AHSEC Class 12 Banking Question Papers From 2012 Till Date
3. AHSEC Class 12 Banking Solved Question Papers From 2012 Till Date
4. Banking Chapter wise MCQs
5. Class 12 Banking Important Questions and Question Bank
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Q.1. What do you mean by a Central
Bank? Explain the nature of central bank.
Ans: Central Bank: The central bank is the supreme monetary
institution of any country. It is a national bank which provides banking
services to the government and commercial banks. It also helps in implementing
monetary policy of the government and issuing currency. It is established,
owned, controlled and financed by the govt. of the country.
In the words of R.S. Sayers, “It is a bank
which controls the commercial banks in such a way as to promote the general
monetary policy of the country.”
India’s
central bank is called the Reserve Bank of India. It is the apex monetary
institution of India (2017). Reserve Bank of India was established on April
1, 1935 under schedule II of the Reserve Bank of India Act, 1934. Originally it
was constituted as private banks with a share capital of Rs. 5 Crores. Entire
share capital was owned by the private individuals. After independence, it was
decided to nationalize the Reserve Bank of India and it was nationalized under
the Reserve Bank (Transfer to public ownership) Act 1948, on January 1, 1949.
From January 1, 1949 the RBI started functioning as a state owned and state
controlled central bank.The nature of Central Bank is as follows:
a) It is the
head of all the banks of India. It is the supreme monetary institution of the
country.
b) They
always work for national welfare of a country. They do not aim at earning
profits.
c) It is
established, owned, controlled and financed by the govt. of the country.
d) It does
not compete with other financial institutions in the market.
e) The RBI
acts as the banker, agent and advisor to the Government of India and State
governments.
Q.2. Write
a brief note on Organisation Structure and Management of RBI.
Ans: The Reserve Bank was set up as corporate
body. The organizational structure of the Reserve Bank is provided by the
Reserve Bank of India Act, 1934. It comprises of the: (a) Central Board and (b)
Local Boards.
Central Board: The Central Board of
Directors is the supreme governing body of the Bank. It consists of 20 members.
The members include the following:
1)
A Governor and not more than four Deputy
Governors to be appointed by the Central Government.
2)
Four Directors to be nominated by the Central
Government, one each from the four local boards.
3)
Ten Directors to be nominated by the Central
Government. They are experts from the fields of business, industry, finance and
co-operation.
4)
One Government Official (Secretary, Ministry
of Finance) to be nominated by the Central Government.
The power of the Board vests with the
Governor who is the Chief Executive Officer of the Bank. The Governor has the
responsibility of directing the affairs and business of the Bank. The Governor
and Deputy Governors hold office for a period of 5years and are eligible for
the reappointment. The Governor in his work is assisted by four Deputy
Governors and four Executive Directors. The executive directors are not the
members of the Central Board but attend Board meetings by invitation. They are subordinate
to Deputy Governors.
Local Boards: Apart from Central Board
of Directors, four Local Boards are constituted representing each area
specified in the first schedule to the Act. There is a Local Board in Eastern,
Western, Northern and Southern regions of the country with headquarters at
Kolkata, Mumbai, New-Delhi and Chennai.
Local Board consists of five members, each appointed by the Central Government. In each Local Board, a Chairman is elected from amongst the members. The members of the Local Board hold office for a period of four years and are eligible for reappointment.
Q.3. Why is the establishment of
Central Bank necessary in a country? Or What are the objectives of RBI?
Ans: The Central Bank plays a vital role in economic development
of a country. It controls the whole monetary and banking system of a country.
It acts as a lender of the money market and supervises controls and regulates
the activities of all commercial banks and other financial institutions. A
Central Bank is necessary in a country because of the following reasons:
a) To
maintain monetary stability in the country.
b) To
successfully implement the monetary policies of the govt. of the country.
c) To
regulate the overall volume of credit money in the economy so as to maintain
price stability.
d) To
maintain financial stability and ensure sound financial institutions.
e) To issue
currency notes in a country.
f) To meet
the financial requirements of the various sectors of the economy.
g) To
promotion of the foreign trade of the country through various policies.
h) To promote
the development of financial market and systems.
i)
To
establish monetary relations with other countries of the world and
international financial institutions.
j)
To set up government banks.
k) To manage
public debt.
Q.4. List
out various departments of RBI. 2012,
2016
Ans: DEPARTMENTS OF THE RBI: To ensure smooth
and efficient functioning of the Bank the RBI has been divided and sub-divided
into various department which are as follows:
1.
Issue department: The issue department is
concerned with the proper and efficient management of the note issue.
2.
Banking department: The banking department is
responsible for providing the banking services to the Government and to the
banks.
3.
Exchange control department: The exchange
control department is concerned with the purchase and sale of foreign exchange
and maintaining stability in foreign exchange rates.
4.
Department of banking operations and
development: This department is entrusted with the responsibility of the
supervision, control and development of the banking system in the country.
5.
Agricultural credit department: This
department looks into the problems of agricultural sector. It provides
facilities of rural credit to state governments and state cooperative
societies.
6.
Department of non-banking companies: This
department administers and controls as well as regulates working of non banking
financial companies.
7.
Legal department: It renders legal advice on
various matters referred to it by the bank.
8.
Inspection department: It carries out internal
inspection of the offices and department of the banks.
9.
Premises department: It is mainly concerned
with the construction and maintenance of buildings for the Bank’s office,
training institutions and staff quarters.
10.
Reserve Bank and India service board: It is
concerned with conducting of examination/interviews for the selections and
promotion of staff in the RBI.
11.
Department of accounts and expenditure: It
maintains various records relating to the receipts and expenditure of RBI.
12.
External investment and operations: It
undertakes investment into the securities of corporate sector or Government.
Q.5. Explain central banking functions
of RBI or traditional functions? 2013,
2015, 2016, 2017, 2018, 2019
Ans: The functions of RBI are:
1. Note Issue: The reserves bank of India is the sole authority for the issue of currency in India other than one rupee coins/notes and subsidiary coins. The RBI has adopted the minimum reserves system of note issue to issue currency notes in the country. Under this system the RBI maintains a minimum reserve of Rs. 200 crore of which Rs. 115 crore is in gold and the rest in securities. The issue department of RBI has the responsibility to issue paper money. It is responsible for getting its periodical requirements of notes printed from the currency presses of the Government of India, distribution of currency among the public and withdrawal of unserviceable notes and coins from circulation. The Issue Department deals directly with the public in exchange of currency for coins and vice versa and exchange of notes of one denomination for another.
2. Bankers to Government: The RBI acts as banker to the Central and State Government as a bankers as a adviser as a agent into their capacities:
a) As a
bankers.
b) As an
agent.
c) As an
advisor.
As a Government banker the RBI
performs the following functions:-
a) It
maintains and operates deposit account of the central and state governments.
b) It
receives and collects payment on behalf of the Central and state governments.
c) It makes
payments on behalf of the central and state governments.
d) It
provides short term advances to government for which are called ways and means
advances etc.
As a
Government agent the RBI perform the followings functions:-
a) Collect
tax and other payments on behalf of the government.
b) Raise loan
from the public and thus manages public debts.
c) Transfer
funds and provide remittances facilities to the government etc.
As an adviser the RBI acts as an
advising the Government on all financial matters such as loan separations
investment, agricultural and industrial finance, banking planning etc. It also
advices to promote the attainment of the national economic goals.
1. Bankers
Bank: The Central Bank is a banker to all the other banks. It is the supreme
bank of all the banks. As the supreme bank it performs various functions. Some
of the functions are:
a) Custodian
of cash reserve of the bank: The Central Bank acts as the custodian of cash
reserve of the banks. Every Commercial bank has to keep a certain portion of
their deposits and time and demand liabilities to the Central Bank in the form
of cash reserves. The Central Bank maintains this cash reserve as the custodian
and grants money to the commercial bank in times of emergency.
b) Lender of
the last resort(2017): The Central
Bank is the Lender of the last resort of the commercial banks. When the other
banks shortage of funds, then they can approach to the Central Bank for
financial assistance. The Central Bank lends money to them by discounting their
bills. This enables the Central Bank to establish control over the banking
system of the country. The RBI is ultimate source of money and credit provide
fund to money market participate thus the RBI act as lender of last resort for
the commercial banks.
c) Clearing
agent (2018): In India the central clearing functions is managed by the RBI or
the SBI is authorized to manage clearing house functions every day. Each
commercial bank receives a number of cheques for collection from other banks on
account of their customers. One bank may have to pay certain amount to another
bank again the RBI will transfer fund from debtor to creditors account. Since
all banks have their accounts with the RBI, the RBI can easily settle the
claims of various banks each other with least use of cash. The clearing house
functions of RBI are:
Ø For
settlement of banking transactions between two banks.
Ø To helps
in economizing the uses of cash by banks.
Ø Look-over
the liquidity position of the bank.
2. Control of
credit: As a central bank, the RBI take
the responsibility to control of credit in order to economic development and
price stability in the country under credit control policy different method are
used to control the volume of credit in the economy. Important of them are
General Credit Control and Selective Credit Control.
3. Custodian
of gold and foreign exchange reserves: - The RBI act as a custodian of gold and
foreign exchange reserves for both on its own and on behalf of the Government.
Q.6. Explain the function of Bank as
the issuer of Currency Notes. (3 marks
for each method) 2020
Ans: The first function or the primary function of money is to
issue paper currency. The Central Bank has the sole power to issue paper
currency. The notes are legal tender money. In India, the RBI issue currency
notes of all types except One Rupee note which are issued by the Ministry of
Finance, Govt. of India. But the notes are issued following some methods. The
Central Banks follows different methods or system according to the currency or
banking regulations to issue notes. These systems are:
a) Simple
Deposit system/Full reserve system. 2015
b) Fixed
fiduciary system.
c) Proportional
reserve system.
d) Minimum
reserve system. (Followed in India from
1956 onwards) – (2014, 2016, 2017)
e) Maximum reserve
system.
The simple deposit system is also knows as
full reserve system. Under this system, the Central Bank is required to keep
100% of metal, either gold or silver or both as reserve for every note issued.
The notes so issue becomes representative paper money. The advantage of this
system is that it enjoys a public confidence and there is no danger of over
issue of currency notes. But it is very costly and money supply cannot be
increase as and when required.
The system of fixed fiduciary was first
introduced in England in 1844. Under this system, the Central Bank issue
currency notes up to a certain limit against reserves of Govt. securities. The
notes issued beyond the limit set by the law have to be fully banked by
metallic reserves. Though the system inspires public confidence and ensures
convertibility of currency notes without any danger of over issue, yet the
system is uneconomical and un-elastic as it requires sufficient gold reserves
and the supply of money cannot be increased easily at time of emergency.
The proportional system of issuing currency is
very simple and elastic. According to this system, the notes issued by Central
Bank are banked by both metallic reserves and securities. A certain percentage
(25 to 40%) of the total notes issued has to be backed by gold or silver
reserves and the remaining by Govt. securities. The system guarantees the
convertibility of paper money and is economical to use.
The minimum reserve system is followed in
India since 1956. This is a system in which the Central Bank is authorized to
issue notes up to any limit by keeping a certain minimum reserve of gold and
foreign securities. In India, the RBI is required to keep the minimum reserve
of Rs. 200/- crore out of which Rs. 115/- crore should be kept in gold. The
system is very elastic and economical for developing countries as it requires
only a small and fixed amount of gold reserve. However, it lacks in public
confidence due to non-convertibility of notes.
The system in which the Central Bank is authorized
to issue notes up to a certain limit without any gold reserves is known as
Maximum Reserve System. Under this system, the Central Bank is given power to
determine the maximum limit and also the power to reserve the limit from time
to time according to the needs of the economy. This system is elastic and
economical to use. But it involves the danger of over issue of notes and lacks
public confidence.
Q.7. Mention the Development and
Promotional functions of the Central Banks. 2020
Ans: The RBI, as a Central Bank of the Country has assumed greater
responsibility as developmental and promotional agency. Its promotional
functions and activities have been mainly directed towards building up and
strengthening financial infrastructure and filling the institutional gap by
setting up new financial institutions and by ensuring the allocation of credit
in the socially desired directions. The Development and Promotional functions
of the Central Banks are listed below:
a) To promote
and strengthen commercial banking in our country by taking various steps such
as putting regulation on banks, setting up of deposit insurance corporation,
amalgamation and consolidation of banks.
b) To promote
agricultural and rural credit by setting up and developing key financial
institutions like NABARD and RRBS.
c) To promote
short, medium and long term industrial finance by setting up various
institutions such as IDBI, SIDBI, SFCs, SSIDC etc.
d) To promote
exports through refinance to banks against export credit.
e) To
maintain internal price and exchange rate stable.
f) To promote
the market for investments in Govt. securities.
g) To promote
housing finance by promoting the national housing bank in 1988 to organise and
augment resources for housing.
h) To promote
co-operative banking by providing funds to co-operative banks.
i)
RBI also encourages and promotes research in
the areas of banking.
Q.8. What are prohibitive functions of
RBI? 2019
Ans: The prohibitive functions of RBI are:-
1) It can
neither participate non-provide any direct financial assistance to any
industry, trade or business.
2) It cannot
purchase its own shares.
3) It cannot
purchase shares of any banking company or of any corporation.
4) It cannot
purchase immovable property except for the establishment of its offices.
5) It cannot
give loans on the security of shares and immovable property.
6) It cannot
give interest on deposits held by it.
7) It cannot
accept draw bills not payable on demand.
Q.9. Briefly discuss the supervisory
power of RBI?
Ans: The supervisory powers of RBI are:
a) Licensing
of Banks: The RBI grants license to banks or establishing their place of
business in India. The RBI is empowered to council the license of a banks if it
violets any provision of the law or cases to carry on banking business.
b) Approval of
capital reserves and liquid assets of banks: The RBI ensures that each and
every bank has the minimum requirement of capital reserves and liquid assets.
c) Inspection
of Banks : The RBI inspects and makes enquiries in respect of varies matters
like loans and advances, deposits, investments, profit planning, man power
planning, branch expansion organizational structure and the others banking
services.
d) Controls
over management and methods: The RBI exercises control over the management of
the banks in matters like constitution of the board of the public sector banks
appointment remuneration etc.
e) Audit: The
banks are required to get their balance sheet and profit and profit and loss
account duly audited by the auditors approved by the reserves bank.
f) Control
over amalgamation and liquidation: The RBI control over amalgamation and
liquidation of the banks in certain cases.
g) Implementing
the deposit insurance scheme: The RBI has implemented the deposit insurance
scheme for the benefit of the banks depositors.
Q.10. What do you mean by Monetary
Policy and Credit Control? What are its objectives?
Ans: Monetary policy refers to the use of the official instruments
under the control of the central bank to regulate the availability, cost and
use of money and credit with the aim of achieving optimum levels of output and
employment, price stability and balance of payments equilibrium.
Credit control is the most important function of the RBI. The
capacity of the banks to create credit depends on the cash reserves available
with banks which increase with rise in the deposits of the banks or vice-versa.
The regulation of credit creation capacity of the commercial banks and other
banking institutions by the Central Bank to achieve some definite objectives is
known as Credit Control. The objectives of the Central Bank for Credit Control
of the other banks are:
a) To
establish stability in the internal price level by adjusting the supply of
credit.
b) To
maintain stability in the foreign exchange rates by eliminating fluctuations in
the exchange rates.
c) To
eliminate cyclical fluctuations in the production, employment and prices of
goods.
d) To
stabilize money market of the economy.
e) To
achieve full employment of resources and accelerate economic growth with
stability.
f) To meet the financial requirements of an
economy not only during normal times but also during emergency or war.
Q.11. What are the principle methods
or instruments of Credit Control used by the Central Bank?2012, 2014, 2018
Ans: The principle methods or instruments of Credit Control used
by the Central Bank are:
1) Quantitative
or General Methods
2) Qualitative
or Selective methods
1) Quantitative or General Methods: These are
the traditional or general methods of credit control. These methods one used by
Central Bank to have control over the total volume of credit in the economy
neglecting the purpose for which it is used. These methods are:
a) Variation
in the bank rate 2012,
2015, 2017
b) Open
Market operations:
c) Variation
in cash reserve ratio:
d) Variation
in the statutory liquidity ratio:
e) ‘Repo’
Transactions:
a) Variation
in the bank rate: Bank rate or discount rate is the rate at which the Central
Bank of a country makes advances to the banks against approved securities or
rediscounts the eligible bills. The purpose of change in the rate is to make
the credit cheaper or expensive depending upon whether the purpose is to expand
or control credit. An increase in bank rate result, in increase in lending rate
of commercial banks lending to contraction of credit while a decrease in bank
rate leads to decrease in lending rates of commercial banks lending to
expansion of credit.
b) Open
Market operations: Open market operations means deliberate and direct buying
and selling of securities and bills in the market by the Central Bank. The open
market operations of the RBI are mostly limited to government securities. In
order to increase money supply in the market, the RBI purchases securities in
the open market. On the other hand, in order to contract credit, the RBI starts
selling the securities in the open market.
c) Cash
reserve ratio: Every scheduled bank in India is required to maintain a minimum
percentage of their deposits with the RBI. Larger the reserve, lesser is the
power of the banks to create credit and smaller the reserves, greater is the
power of the banks to create credit.
d) Statutory
liquidity ratio: Statutory liquidity ratio is another reserve requirement used
by the RBI to control money supply. In India, besides maintaining the cash
reserve, every bank has to maintain a statutory reserve of liquid assets in
terms of cash, gold or unencumbered securities. This is termed as statutory
liquidity ratio. In increase in the liquidity ratio implies a transfer of
banking funds to Government and corresponding reduction in credit available to
the borrowers.
e) ‘Repo’
Transactions: ‘Repo’ stands for repurchase. Repo or repurchase transactions are
undertaken by the Central Bank in the money market to manipulate short term
interest rates and to manage liquidity levels. Under repo, buying and selling
of securities takes place with the condition that at the end of the specified
fixed period the buyer shall sell the securities at the predetermined rate. The
difference between the repurchase price and the original sale price will be
earning for the lender. An increase in repo rate means the commercial banks
will get more interest on their reserve with RBI which leads to shortage of
funds in the economy. On the other hand, decrease in repo rate means the
commercial banks will earn less return on their balance with RBI which increases
withdrawal of funds by commercial banks from RBI and thus increases liquidity.
2) Qualitative or Selective Methods: These are
basically the selective and general methods of credit control. These methods
are used for controlling the use and direction of credit. They have nothing to
do with the control of the total volume of credit in economy. These methods are
:
a) Directions:
Sec. 21 of the Banking Regulation Act gives powers to the RBI for controlling
granting of advances by an individual bank or by banking as a whole. The RBI
can give directions to any particular bank or all banks in general in regard to
the purposes for which advances may or may not be made, the maximum amount of
advance to any individual, firm or company etc.
b) Margin
requirement: Margin means the difference between the market price of security
and loan amount. Changing margin requirement is another credit control method
followed by the RBI. This system was introduced in 1956. By requiring higher
margin while accepting a commodity as a security, the RBI can decrease the flow
of credit to particular sector or vice versa.
c) Consumer
Credit Regulation: Under this method, consumer credit supply is regulated
through hire-purchase and installment sale of consumer goods. Under this method
the down payment, installment amount, loan duration, etc is fixed in advance.
This can help in checking the credit use and then inflation in a country.
d) Publicity:
This is yet another method of selective credit control. Through it Central Bank
(RBI) publishes various reports stating good sector and bad sectors in the
system. This published information can help commercial banks to direct credit
supply in the desired good sectors.
e) Credit
Rationing: Central Bank fixes credit amount to be granted. Credit is rationed
by limiting the amount available for each commercial bank. This method controls
even bill rediscounting. For certain purpose, upper limit of credit can be
fixed and banks are told to stick to this limit. This can help in lowering
banks credit exposure to unwanted sectors.
f) Moral
suasion: It implies to pressure exerted by the RBI on the Indian banking system
without any strict action for compliance of the rules. Under moral suasion
central banks can issue directives, guidelines and suggestions for commercial
banks regarding reducing credit supply for speculative purposes. It helps in
restraining credit during inflationary periods.
g) Direct
action: Under this method the RBI can impose an action against a bank. If
certain banks are not adhering to the RBI's directives, the RBI may refuse to
rediscount their bills and securities. Secondly, RBI may refuse credit supply
to those banks whose borrowings are in excess to their capital. Central bank
can penalize a bank by changing some rates.
Q. 12. Distinguish between Central
bank and commercial bank.
Ans: There are some fundamental differences between them:
1) Profit
making is not the objective of central banks, although, they do earn profits.
But, the principle aim of a commercial bank is to make large amounts of
profits.
2) The
central bank is owned and controlled by the Government. But A commercial bank
is generally owned, managed and controlled by private citizens.
3) There is
only one central bank in a country. But, there are commercial banks operating
in a country on a competitive basis.
4) The
central bank is the only agency in a country entrusted with the power of
issuance of notes. But, the commercial banks do not have the power of issuing
notes.
5) The
central bank s the lender of the money market. But, the commercial banks are
just its sub-ordinates.
Q.13. Write a brief note on
achievements and failures of RBI.
Ans: Achievements of RBI
(a) Contribution in economic development: The Reserve Bank fully contributes to the economic
development and planning programs of the country. The demand for credit for
agriculture industry, trade, foreign exchange etc. is met with the fulfillment
of the deficit finance arrangements.
(b)
Contribution in agricultural development: The Reserve Bank has made significant
contribution in providing short-term, medium and long-term financing through
cooperative banks to the agriculture sector. The Reserve Bank has given Rs 2
thousand crore in agricultural sector till date.
(c)
Industrial finance: With the establishment of the Industrial
Finance Bank such as Industrial Finance Corporation, State Finance Corporation
etc, the Reserve Bank has provided adequate finance to the industries by
purchasing shares of other institutions.
(d)
Flexible Monetary Policy:The Reserve Bank
has adopted a flexible monetary policy. It has introduced changes in monetary
regulations keeping in view the seasonal character of Indian money market. The
pressure of seasonal demand has been adequately met. On account of it the
seasonal fluctuations in money rates have been negligible.
(e)
Organising Public Debts: RBI is the agent of the government. So he
also manages the public debt. The Reserve Bank has achieved tremendous success
in this. From time to time, the Reserve Bank has solved financial problems by
giving short term loans to the government.
(f)
Function of clearing house: The Reserve Bank is doing the job of clearing
house in India smoothly. As a result, mutual transactions of different banks
are handled instantly with ease.
Failures of RBI
(a) Fails
to regulate and control banking system: The Reserve Bank has failed to
regulate and control commercial banks and other financial institutions. The
Reserve Bank has failed to comply with the banking law, to study the audit
report to banks and to control the loan amount transactions.
(b) Lack of Uniformity in the Rate of Interest:Because of the lack of control on different
sectors of the money market, different rates of interest continue to prevail.
Outside the organised sector of the money market, rates of interest are
exorbitantly higher than the bank rate. Reserve Bank has rather miserably
failed in this regard.
(c) Lack
of statistics: Although the Reserve Bank has many resources and agencies to
collect data of different economic items of the country, yet it has not
developed a system whose publications can be used as a reliable "bank of
statistics".
(d) Lack of Bill Market:Reserve Bank prepared a plan for the
development of Bill Market in 1952. But till date there is no independent and
organised bill market in India. Bill Market in India does not receive
first-rate Discountable Bills.
(e)
Inadequate Banking Facilities: Nationalization done from time to time
in the country increased the number of banking branches. But there is still
lack of banking facilities in rural areas.
(f) High
rates of interest: The Reserve Bank has failed to coordinate the
various currency markets in the country. There are many types of interest rates
are available in the money market. The unorganized sector in rural areas still
offers loans at very high rates.