Role of rbi in indian economy essay

In this essay we will discuss about the Indian Money Market. After reading this essay you will learn about: Structure of Indian Money Market 2. Characteristics and Defects of Indian Money Market 3.

Role of rbi in indian economy essay

For smooth functioning of the economy RBI control credit through quantitative and qualitative methods. Thus, the RBI exercise control over the credit granted by the commercial bank.

The reserve Bank is the most appropriate body to control the creation of credit in view if its functions as the bank of note issue and the custodian of cash reserves of the member banks. It means, bank will accelerate economic growth on one side and on other side it willcontrol inflationary trends in the economy.

It leads to increase in realnational income of the country and desirable stability in the economy. Objectives of credit control: To obtain stability in the internal price level. To stabilize money market of a country. To eliminate business cycles-inflation and depression-by controllingsupply of credit.

To meet the financial requirements of an economy not only duringnormal times but also during emergency or war. To help the economic growth of a country within specified period of time. This objective has become particularly necessary for the lessdeveloped countries of present day world.

Methods and instruments of credit control: There are many methods of credit control. These methods can be broadlydivided into two categories: Quantitative or General Methods. Qualitative or selective methods. The quantitative methods of credit control aim at influencing the quantity or total volume of credit in an economy during a particular period of time.

According to section 42 1 of RBI Act every schedule bank has to maintain a certain percentage reserve of its time and demanddeposits. Reserve Bank itself changed this ratio according to the creditrequirement of the economy.

It has been changed several times in the historyof Reserve Bank of India. The cash reserve ratio affects on the lend ablefunds of commercial banks. If this ratio increases the credit creation capacityof commercial banks decreases. On the other hand if this ratio decreases thecredit creation capacity of commercial banks increases.

On 17 Aprilthe Reserve Bank of India hiked the cash reserveratio of scheduled commercial banks, regional rural banks, scheduled stateco-operative banks and scheduled primary urban co-operative banks by 50 basis points to 8 per cent in two stages effective 26 April and 10 May The monetary authority stated that as a result of the above increase inCRR on liabilities of the banking system, an amount of about Rs.

In this context, it may benoted that surplus liquidity in the banking system amounted to Rs. The Reserve Bank's move comes at a time whenthere are only 12 days left for its monetary policy.

The monetary policy isdue to be announced on 29 April The hike in the cash reserve ratio of banks is a measure aimed at reducing liquidity in the banking system therebyreducing the money supply which in turn is expected to help curb inflation.

The CRR hike will put margins of banks under a bit of a pressure since theywont be earning anything on the money that they park with the RBI as cashreserve.

role of rbi in indian economy essay

The CRR hike will put margins of banks under a bit of a pressuresince they wont be earning anything on the money that they park with theRBI as cash reserve.

On 29 Aprilthe Reserve Bank of India released its annualmonetary policy statement for the year It increased the cash reserveratio for scheduled commercial banks by 25 basis points to 8. It was only less than a fortnight ago that the bank had raised the cash reserve ratio.

On 17 April, the monetary authorityhad announced that the CRR would be raised by 25 basis points with effectfrom 26 April and by another 25 basis points with effect from 10 May The two increases announced on 17 April were expected to suck outRs.ROLE OF RBI IN INDIAN ECONOMY ROLE OF RBI (Size: KB / Downloads: 83) Reserve Bank of India Act, The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in One of the major considerations that led to the nationalization of the fourteen major commercial banks of India in was the fact that banks, in general, had been negligent of the vital priority sectors of the economy, viz., agriculture and small-scale industries.

Jul 24,  · Reasoning For RBI Grade B- Blood Relations Part 1 Reasoning For RBI Grade B- Blood Relations Part 2 Follow Social Links. Indian Banking system had played an important role in the economic growth of India since 18 th century.

RBIs Control of Inflation - Time to look beyond Monetary Measures?

RBI is the main authority of public sector banks, private banks, financial and non financial instutions. The Reserve Bank of India has played a lead role in this sphere of activity - with the introduction of cheque clearing using the MICR (Magnetic Ink Character Recognition) technology in the late eighties.

Contribution to GDP of India by economic sectors of Indian economy have evolved between and , as its economy has diversified and developed. Historically, India has classified and tracked its economy and GDP in three sectors: agriculture, industry and services.

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