Page 40 - DMGT303_BANKING_AND_INSURANCE

Unit 2: Reserve Bank of India

2.6 Summary Notes

A central bank, reserve bank, or monetary authority, is an entity responsible for the
monetary policy of its country. Its primary responsibility is to maintain the stability of
the national currency and money supply, but more active duties include controlling
subsidized-loan interest rates, and acting as a “bailout” lender of last resort to the banking
sector during times of financial crisis (private banks often being integral to the national
financial system). It may also have supervisory powers, to ensure that banks and other
financial institutions do not behave recklessly or fraudulently.
The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of
1934) provides the statutory basis of the functioning of the Bank.
In addition to its traditional central banking functions, the Reserve bank has certain non-
monetary functions of the nature of supervision of banks and promotion of sound banking
in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given it
wide powers of supervision and control over commercial and co-operative banks, relating
to licensing and establishments, branch expansion, liquidity of their assets, management
and methods of working, amalgamation, reconstruction, and liquidation.
2. 7 Keywords

Agricultural Finance: Loans given to boost agricultural activities.
Boom and Bust: The term boom and bust refers to a great buildup in the price of a particular
commodity or, alternately, the localized rise in an economy, often based upon the value of a
single commodity, followed by a downturn as the commodity price falls due to a change in
economic circumstances or the collapse of unrealistic expectations.

Central Banks: The Central Bank is a financial institution charged with several different functions,
the most important of which is managing a country's monetary policy. It is the nation's principal
monetary authority that regulates the money supply and credit, issues currency, and manages
the rate of exchange. It is a bank that can lend money to other banks in times of need.

Industrial Finance: Loans given to boost business activities.
Monetary Policy: Monetary policy is the process by which the government, central bank, or
monetary authority of a country controls (i) the supply of money, (ii) availability of money, and
(iii) cost of money or rate of interest, in order to attain a set of objectives oriented towards the
growth and stability of the economy. Monetary theory provides insight into how to craft optimal
monetary policy.
Open Market Operations: Open market operations are the means of implementing monetary
policy by which a central bank controls its national money supply by buying and selling
government securities, or other financial instruments in open market. Monetary targets, such as
interest rates or exchange rates, are used to guide this job.

Risk Management: Risk Management is the identification, assessment, and prioritisation of
risks followed by coordinated and economical application of resources to minimize, monitor,
and control the probability and/or impact of unfortunate events.
Statutory Liquidity Ratio (SLR): Statutory Liquidity Ratio or SLR refers to the amount that all
banks require to maintain in cash or in the form of gold or approved securities. Approved
securities mean, bond and shares of different companies. This Statutory Liquidity Ratio is
determined as percentage of total demand and percentage of time liabilities.

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