ICSE PROJECT

2021-22

Name: Mridul Moolchandani

Subject: Commercial application

Title: Write an essay on the role of the Central Bank

in any economy with special reference to the Indian
scenario.

Registration No:
 CERTIFICATE

This is to certify that Ms/Mst

…………………Mridul Moolchandani………………………………

has satisfactorily completed the project in .…Commercial application…………………….

prescribed by CISCE BOARD – Grade X of this institution in the year 2021-22.

Teacher in charges Head of the department

Name: …………………………………… Name: …...……………………………..

Date: ……………………………………… Date: ……………………………………

Reg. No. Of the candidate: ……………………………………………………

 ACKNOWLEDGEMENT

I would like to thank my principal, my teacher who guided me and taught me and helped me
finish my project.
Sr. No TOPIC PAGE NO.
1 INTRODUCTION 1

2 FUNCTIONS OF RESERVE BANK 2

3 ADVANTAGES OF RESERVE BANK 3

4 ANNUAL PUBLICATIONS OF RESERVE BANK 4

5 RBI POLICIES 5

6 BIBLIOGRAPHY 6

INDEX
 INTRODUCTION

In 1935, the Reserve Bank of India was established. The Reserve Bank of India (RBI) is in
charge of formulating, implementing, and monitoring India's monetary policy. The
Reserve Bank of India oversees the printing of banknotes in India in order to maintain
monetary stability. When notes and coins become worn, the RBI guarantees that new,
clean currency is available in the market. RBI, like commercial banks, has the ability to
lend money to the government.

Timeline of the History of Reserve Bank of India –

1927 - A bill to give effect to the above recommendation was introduced in the Legislative Assembly.
But it was later withdrawn due to lack of agreement among various sections of people.

1933: The White Paper on Indian Constitutional Reforms recommended the creation of a Reserve
Bank. A fresh bill was introduced in the Legislative Assembly.

1935: The Reserve Bank commenced operations as India’s central bank on April 1 as a private
shareholders’ bank with a paid up capital of rupees five crores.

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

1949: The Government of India nationalized the Reserve Bank under the Reserve Bank Act, 1948.
 PAGE 1

The functions of Reserve Bank of India are –

1. Issue of Notes —The Reserve Bank has a monopoly for printing the currency notes in the
country.

2. Banker's Bank - The Reserve Bank performs the same functions for other commercial
banks as the other banks ordinarily perform for their customers. RBI lends money to all the
commercial banks of the country.

3. Development role - Performs a wide range of promotional functions to support national

objectives. This includes work like providing timely credit to the productive sectors of the
economy, creating institutions to build financial infrastructure, expanding access to
affordable financial services and working on financial inclusion of all classes of the society.

4. Regulator and Supervisor of the Financial System - Reserve Bank of India introduces and
upgrades safe and efficient modes of payment systems in the country to meet the
requirements of the public at large. This includes implementing various advanced
technologies.

5. The issuer of Currency - The reserve bank of India has the sole right to issue new currency
notes and coins, exchanges or destroy currency not fit for circulation.

6. Country’s Foreign Currency Reserves - The Reserve Bank has the custody of the country’s
reserves of international currency, and this enables the Reserve Bank to deal with crisis
connected with adverse balance of payments position.
 7. Controller of Credit - credit money forms the most important part of supply of money and
in controlled by the reserve bank in accordance with the economic properties of the
government.

PAGE 2
Significance of Reserve Bank of India

The Reserve Bank of India has had a significant influence in determining the Indian
economy's development strategy. It has a long history of data collection, helpful economic
research, and knowledge dissemination. The Reserve Bank's actions have aided the country
in overcoming numerous financial difficulties. They also regulate loan offered by banks
and non-banking financial institutions to government entities businesses and consumers
and controls the availability of funds in the financial system of credits.

The advantages of Reserve Bank of India are –

1. In one hand, you have control over both fiscal and monetary policy. Governments typically
desire to cut interest rates and spend more frequently, but the RBI governor may not always
behave according to his whims and fancies (though the MPC has helped to decrease this
friction). If he is the same person, though, he can spend as much as he likes and cut interest
rates as he pleases.

2. The finance minister is accountable to the people because he was democratically elected. The
governor of the Reserve Bank of India is not. This difficulty can be solved by appointing the
same person as finance minister.

3. It ensures that the economy has plenty of liquidity.

4. It enables banking organizations to make more money by maximizing lending opportunities.

5. It ensures that banking institutions are protected from future risks.

6. It guarantees that depositors are informed of their bank's financial performance and, at any
given time, if they are coping with lower margins.

7. It promotes the free flow of money in the economy, which aids in the management of total
liquidity.

8. It increases the purchasing power of money by encouraging financial entities to invest in

government assets.

The disadvantages of Reserve Bank of India are –

1. In an economy, monetary and fiscal policy function as both a steering and a breaking force.
If one is going too fast, the other can help slow it down. There will be no such check and
balance if the same person holds both positions.

2. Though the Finance Minister is accountable to the people, he will only be in office for five
years. And for him, short-term growth is more vital than long-term growth. An independent
 RBI governor will likewise serve for five years, but he must maintain the integrity of the
office he holds, so he will not make any decisions that could be detrimental in the long run.

PAGE 3
3. Reserve requirements are unworkable to some extent because even little changes in the
minimum cash-reserve ratio can result in significant changes in money supply. For banking
organizations, the result of this impracticality could be quite costly.

4. Maintaining reserves may generate liquidity concerns for banking organizations with a low
rate of excess reserves.

The funds rate, the rate that banks pay for overnight borrowing in the funds market, is the principal
tool that the Reserve Bank employs to conduct monetary policy. Changes in the funds rate have
an impact on other interest rates, which in turn have an impact on borrowing costs for individuals
and businesses, as well as broader financial circumstances. When interest rates fall, for example,
borrowing becomes less expensive, causing households to be more inclined to purchase products
and services, and businesses to be better able to purchase items to develop their operations, such
as property and equipment.
During economic downturns, the funds rate lowered to bound near zero. In such times, if additional
support is desired, the Fed can use other tools to influence financial conditions in support of its
goals.

Reserve Bank of India Annual Publications –

1. Annual Report - The Reserve Bank of India's annual report is a statutory report that is
published every year. The Indian economy is valued and progressed in this research. An
overview of the economy, the Reserve Bank's operations during that year, and the RBI's
projected vision and agenda for the following year, as well as the Reserve Bank's annual
accounts.

2. Basic Statistical Returns — This is another data-driven yearly journal that represents
complicated information on the number of offices, workers, deposits, and credit of
Scheduled Commercial Banks in minute levels of detail, such as region-, state-, and district-
level data. This information is also passed on to the general public and each bank's credit
standards.

3. Report on Currency and Finance - This report is written and delivered by Reserve Bank of
India staff, and it focuses on a certain theme and provides a full economic analysis of the
issues surrounding it.

4. Statistical Tables Concerning Indian Banks – This annual publication contains

comprehensive chronology data on India's Scheduled Commercial Banks (SCBs). The
report also includes balance sheet and performance indicator information for each SCB in
India. The journal additionally offers segregated data sources on various key parameters
relating to bank-by-bank, bank-by-bank group, and state-by-state data.

5. Lectures - Three annual lectures have been established by the Reserve Bank of India. Two
of the lectures will be given by former Reserve Bank Governors, and one will be given by
a well-known economist.
 6. Handbook of Indian Economic Statistics – The Reserve Bank's attempt to improve data
distribution is highlighted in this paper. It is a useful repository of important statistical data.

PAGE 4

RBI Policies -

1. Repo Rate - The repo rate, also known as the repurchase rate, is the interest rate at which
the RBI loans money to all other banks for a brief period of time. Borrowing from the
RBI becomes more expensive as the repo rate rises, and customers or the general public
bear the brunt of high interest rates.

2. Reverse Repo Rate - Reverse Repo rate is the short-term borrowing rate at which RBI
borrows money from other banks. The Reserve Bank of India uses this method to reduce
inflation when there is excess money in the banking system.

3. Cash Reserve Ratio - The Cash Reserve Ratio is the percentage of a bank's total deposit
that must be kept with the Reserve Bank of India in the form of liquid cash.

4. Statutory Liquidity Ratio - Leaving aside the cash reserve ratio, banks are required to
maintain liquid assets in the form of gold and approved securities. A higher SLR
disables the banks to grant more loans.

To address public needs, the Reserve Bank of India has made numerous measures
toward establishing and modernizing secure and long-term payment systems in India.
Paper-based instruments, electronic instruments, and additional instruments, such as
pre-paid systems, mobile internet banking, ATM-based transactions, Point-of-Sale
terminals, and online transactions, are currently available in India.

Indicator Current rate

CRR 3%

SLR 18.00%

Repo rate 4.40%

Reverse repo rate 3.75%

Marginal Standing facility rate 4.65%

Bank Rate 4.65%

PAGE 5
Conclusion –

The reserve requirement is a mechanism used by most banking institutions to keep a

percentage of depositors' deposits as reserves to deal with potential situations such as a
sudden increase in withdrawals. The cash reserve ratio is another name for it. The
criteria for reserves and capital are not the same. Reserves aid in the reduction of
liquidity and the slowing down of economic activity. The higher the reserve
requirements, the lower the profits that banking organizations can make with their
money. Because of its limits, a reserve is no longer a significant part of a bank's
regulation.
 PAGE 6
BIBLIOGRAPHY

https://www.toppr.com/guides/general-awareness/rbi/origin-history-and-functions-of-rbi/

https://www.quora.com/What-are-the-advantages-disadvantages-if-the-post-of-RBI-Governor-
and-Finance-Minister-are-held-by-a-single-person-in-India

https://cleartax.in/s/rbi-reserve-bank-of-india

https://www.yourarticlelibrary.com/economics/7-major-functions-of-the-reserve-bank-of-
india/2764

https://brainly.in/question/16170875

https://www.federalreserve.gov/faqs/money_12856.htm
PAGE 7