Banking Awareness: Functioning of RBI and The Rates Determined by RBI for Banking and Competitive Exams

Functioning of RBI and The Rates Determined by RBI

Working of bank is mentioned in the 1934 Reserve Bank of India Act. Working of Reserve Bank of India can be categorised in the following group.

Important Functions of the Reserve Bank of India
As a Central Bank	As an Ordinary Bank
Note Issuing Authority	Granting short-term loans
Banker of Government	Recovery short-term loans
Banker’s Bank	Buying/Selling of bills
Collects and Publishes Banking Data	Accepting deposits
Custodian of Foreign Exchange Reserve	Buying selling of agricultural bills
Provision of Agricultural Credit	Dealing with foreign securities
Provision of Industrial Credit	Dealing with costly metals
Training Facilities	Dealing with banks of other countries
Controller of Credit
Clearing House Function

Important Rates Determined by RBI

i ) Bank Rate: It is also called the re discount rate. It is the rate at which the RBI allows finance to commercial banks. Currently it is at 9%

ii ) Repo Rate: It was introduced in December, 1992 by RBI. It is the rate at which RBI lends short-term money to the banks against securities. It is currently at 8%.

iii ) Reserve Repo Rate: It was introduced in November, 1996. It is the rate at which banks park short-term excess liquidity with on RBI. It is currently at 7%.

iv ) Cash Reserve Ratio: It is the amount of funds that banks have to keep with RBI. If RBI increses CRR, the available amount with banks comes down, RBI uses it to drain out excessive money from the banks.

v ) Statutory Liquidity Ratio: It is the amount which a commercial banks is required to maintain in the form of cash or gold or government approved securities before providing credit to its customers. SLR is used to control inflation and promote growth.

vi ) Marginal Standing Facility: It is the rate at which scheduled banks could borrow funds overnight from RBI. In MSF, banks can use the securities under "SLR" to get loans from RBI. MSF rate is 1% higher than repo rate.