How is rbi controlling the commercial banks

It is no hidden fact that commercial banks are incredibly important for the economic stability of a country. And in India, there are dozens of commercial banks that are currently functional in the nation. If a huge bank like HDFC, ICICI, Or SBI collapses, it’ll be disastrous for the Indian economy, but such huge banks are too big to fail at this point. However, the collapsing thing is still a danger for many small-scale banks, and their collapse can also have a considerable impact on India’s economy. But RBI or the Reserve Bank Of India makes sure to prevent that from happening by governing and controlling the commercial banks in the country. And today we will be taking a look at how RBI functions and how it controls commercial banks. So let’s get down to it then. Why Does RBI Control Commercial Banks? The main goal of RBI is to control inflation, and commercial banks are responsible for increasing the currency liquidity in the country. That’s why RBI controls commercial banks to indirectly control currency liquidity which also means that RBI has control over inflation, to some extent. See, if there is high cash flow in the nation, and commercial banks are easily giving out loans to the people, that’ll affect the purchasing power of the person taking the loan, thus it automatically contributes to the increase of inflation. And RBI is able to control by taking some measures and using the Monetary Policy. What Measures Does RBI Take To Have Control Over Commercial Banks In I...

RBI controls the commercial banks through the following measures: (I) RBI Fixes the Bank Rate and Repo Rate: Bank rate is the interest rate at which the RBI lends funds to other commercial banks in the country. It is also called the discount rate. In order to control the supply of currency in the economic system, RBI often uses the bank rate. On the other hand. Repo Rate is the rate at which commercial banks will borrow the funds from the RBI against the securities. In order to make credit dearer, RBI increases these rates. (il) Variable Reserve Ratios: The commercial banks have to keep a certain proportion of their total assets in the form of liquid assets so that they are always in a position to honour the demand for withdrawal by their customers. Generally, the following two reserves are required to be maintained: (a) Cash Reserve Ratio: CRR refers to the percentage of deposits of the commercial banks which they have to maintain with the RBI in cash form. (b) Statutory Liquidity Ratio: SLR refers to the percentage of deposits to be maintained as reserves in the form of gold or foreign securities by commercial banks. By varying reserve ratios, lending capacity of commercial banks is affected. (iii) Fixing Margin Requirements: The margin refers to the "proportion of the loan amount which is not financed by the bank". By increasing or decreasing margin requirements, the RBI tries to control the lending capacity ' banks. (Iv) Credit Rationing: RBI can fix the upper limit of...

Highlights of the Bill • Co-operative banks are exempted from several provisions of the Banking Regulation Act, 1949. The Bill applies some of these provisions to them, making their regulation under the Act similar to that of commercial banks. • ​ Co-operative banks may raise equity or unsecured debt capital from the public subject to prior RBI approval. • RBI may prescribe conditions on and qualifications for employment of Chairman of co-operative banks. RBI may remove a Chairman not meeting ‘fit and proper’ criteria and appoint a suitable person. It may issue directions to reconstitute the Board of Directors in order to ensure sufficient number of qualified members. • RBI may supersede the Board of Directors of a co-operative bank after consultation with the state government. • The Bill allows RBI to undertake reconstruction or amalgamation of a bank without imposing a moratorium. Key Issues and Analysis • Co-operative banks provide banking facilities to people of small means. However, absence of regulatory oversight by RBI on par with commercial banks has contributed to the poor performance of co-operative banks. The Bill seeks to extend RBI regulation of co-operative banks with respect to management, capital, audit and winding up. • ‘Banking’ is a Union List subject in the Constitution and ‘incorporation, regulation and winding up’ of co-operative societies’ is in the State List. The question is whether regulation of management, audit, capital and winding up of co-oper...

Answer RBI controls the commercial banks via various instruments like Statutory Liquidity Ratio (SLR), Cash Reserve Ratio (CRR), Bank Rate, Prime Lending (PLR), Repo Rate, Reverse Repo Rate and fixing the interest rates and deciding the nature of lending to various sectors. These are those ratios and rates that are fixed by RBI and it is mandatory for all the commercial banks to follow or maintain these rates. All these measures control the commercials banks' operations and also control money supply in Indian economy. Popular Questions of Class 11 Economics - Indian Economic Development • Q:- Compare and contrast the development of India, China and Pakistan with respect to some salient human development indicators. • Q:- What are the functions of the environment? • Q:- Explain the steps taken by the government in developing rural markets. • Q:- Distinguish between the following (i) Strategic and Minority sale (ii) Bilateral and Multi-lateral trade (iii) Tariff and Non-tariff barriers. • Q:- Infrastructure contributes to the economic development of a country. Do you agree? Explain. • Q:- Why was the public sector given a leading role in industrial development during the planning period? • Q:- Match the following: 1. Prime Minister 2. Gross DomesticProduct 3. Quota 4. Land Reforms 5. HYV Seeds 6. Subsidy A. Seeds that give large proportion of output B. Quantity of goods that can be imported C. Chairperson of the planning commission D. The money value of all the final goods a...

The implementation of RBI's Quantitative and Qualitative (Called as Monetary Policy) instruments plays an important role in the development of the country. If the required money supply for the economy is not available in the market, it leads to a decline in investment in the economy. On the other hand, if the money supply in the economy is more than what is required, then the poor section of the economy will suffer because the price of essential commodities will rise. In the Indian Economy, RBI is the sole authority that decides the money supply in the economy. And to control this, RBI implements the monetary policy's Quantitative and Qualitative instruments to achieve economic goals. The main instruments of these policies are CRR, SLR, Bank Rate, Repo Rate, Reverse Repo Rate, Open Market Operations, etc. Let's understand the Quantitative and Qualitative instruments of RBI's monetary policy individually. Quantitative Methods The quantitative instruments are also known as general tools used by the RBI (Reserve Bank of India). As the name suggests, these instruments are related to the quantity and volume of the money. These instruments are designed to control the total volume/money of the bank credit in the economy. These instruments are indirect in their nature and are used to influence the quantity of credit in the economy. Bank Rate Policy The bank rate is the minimum rate at which the central bank lends money and rediscounts first-class bills of exchange and securities h...

RBI uses a Credit control monetary policy strategy to ensure that the country’s economic development is accompanied by stability. It means that banks will not only contain inflationary trends in the economy but will also stimulate economic growth, resulting in increased real national income stability in the long run. Because of its functions, including issuing notes and keeping track of cash reserves, the RBI does not regulate credit because it would cause social and economic instability in the country. RBI- The Reserve Bank of India is India’s central bank and regulatory organisation in charge of overseeing the country’s financial sector. It is owned by the Government of India’s Ministry of Finance. It is in charge of issuing and distributing the Indian rupee. Credit Control Policy Credit control is a monetary policy tool used by the Reserve Bank of India to control the demand and supply of money, or liquidity, in the economy. The Reserve Bank of India (RBI) supervises the credit granted by commercial banks. Credit Control Objectives The following are the broad aims of India’s credit control policy: • To maintain an acceptable amount of liquidity in order to achieve a high rate of economic growth while maximising resource use without causing severe inflationary pressure. • To achieve stability in the country’s currency rate and money market. • To meet financial obligations during a downturn in the economy as well as in regular times. • Controlling the business cycle and m...

Table of Contents 1. 2. 3. 1. Introduction The Reserve Bank of India (RBI) is the apex financial institution of the country’s financial system entrusted with the task of control, supervision, promotion, development and planning. RBI is the queen bee of the Indian financial system which influences the commercial banks’ management in more than one way. The RBI influences the management of commercial banks through its various policies, directions and regulations. Its role in bank management is quite unique. In fact, the RBI performs the four basic functions of management, viz., planning, organizing, directing and controlling in laying a strong foundation for the functioning of commercial banks. In 1921, the Imperial Bank of India was established to perform as Central Bank of India by the British Government. But unfortunately Imperial Bank failed to show its performance up to the mark and didn’t achieve any success as the Central Bank. So, Government required setup of brand new central bank. In 1st April 1935, Reserve Bank of India was setup. In January, 1949, RBI was nationalized. 2. Objective and Establishment of RBI Objectives of the Reserve Bank of India (RBI) Important aspects relating to objectives of the Reserve Bank of India (RBI) are as follows: (1) Primary objects: Preamble to the RBI Act, 1934 spells out the objectives of the RBI as: ( a) To regulate the issue of bank notes. ( b) To keep reserves with a view to securing monetary stability in India. ( c) To operate c...