Page 123 - DMGT401Business Environment

Business Environment

Notes The role of the RBI as a participant in the foreign exchange market, and as a stabiliser of the
market and of the rupee exchange rate has become all the more important with the
introduction of the floating exchange rate system and the rupee convertibility on trade,
current and capital accounts.
6. Collection and Publication of Data: The RBI has been entrusted with the task of collection
and compilation of statistical information relating to banking and other financial sectors
of the economy.

7. Supervisory Function: The RBI has a wide power 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. The RBI is authorised to carry out periodical inspection of
banks and to call for returns and necessary information from them. It has the following
powers in this field:
(a) To issue licences for the establishment of new banks.

(b) To prescribe minimum requirement regarding paid up capital and reserves, transfer
to reserve fund and maintenance of cash reserve and other liquid assets.
(c) To inspect the working of banks in India as well as abroad in respect of their
organizational set up, branch expansion, mobilisation of deposits, investment and
credit portfolio management, credit appraisal, region-wise performance, man power
planning and so on.
(d) To conduct ad hoc investigation into complaints, irregularities and frauds in respect
of banks, from time to time.
(e) To control methods of operation of banks so that they do not fritter away funds in
improper investments and injunctions advances.

(f) To control appointment, reappointment, termination of appointment of the chairman
and chief executive officers of private sector banks.
(g) To approve or force amalgamations.

In keeping with the recommendations of the Narshimhan Committee (1991), the RBI's
functions of bank supervision was separated from its traditional central banking function
by the creation of a separate Department of Supervision (DOS). The Board of Financial
Supervision was set upto oversee the IFS.
The RBI performs many development and promotional functions. It has done valuable
work in aiding development and in promoting saving and banking habits. The RBI
established Deposit Insurance Corporation of India in 1962 to provide securities to
depositors against frequent bank failures. The RBI played an important role in the
establishment of UTI, IFCI, SFC, IDBI, and Agriculture Refinance Corporation, etc.

8. Promoter of the Financial System: The RBI delivers various promotional and development
services to strengthen the country's banking and financial structure.
9. Money Market: In order to increase the strength and viability of the banking system, it
carried out a programme of amalgamations and mergers of weak banks with the strong
ones. When the social control of banks was introduced in 1968, it was the responsibility of
the RBI to administer it in the country to achieve the desired objectives. After the
nationalisation of banks it was the responsibility of the RBI to develop banking interest in
the national interest.

116 LOVELY PROFESSIONAL UNIVERSITY