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