Page 56 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 4: Reserve Bank of India

Notes
This fiscal, the bank has disbursed credit of 1,000 crores to SHGs directly, and expects to
close the year with a 25 per cent growth in this portfolio.
As banks are now looking at direct credit-linkage to SHGs aggressively, MFIs are now
forced to operate on a low-margin high-volume model. With MFIs being forced to reduce
their rate of interest, "margins will be significantly impacted for several of them," pointed
out Mr Suresh K. Krishna, Managing Director, Grameen Koota.

The drop in margins could be as high as 30-40 per cent for those who offer higher rates
now. "But others, who currently offer loans at less than 30 per cent interest rate, there
wouldn't be much of a difference," he added.
Question
Discuss the role of RBI in helping the Self-help Groups.

Source: http://www.thehindubusinessline.in

4.3 Summary

The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934
provides the statutory basis of the functioning of the bank.
The bank was constituted for the need to regulate the issue of banknotes, maintain reserves
with a view to securing monetary stability and operate the credit and currency system of
the country to its advantage.
Reserve Bank plays very important role in Indian economy by maintaining economic
stability, price stability and ensuring overall development of the economy.
The main functions of the RBI include being the bank of note issue.
RBI is also the banker to the Indian government.
It also performs the function of being a bankers' bank and the lender of the last resort.

Apart from these, the RBI works as the controller of credit and custodian of foreign reserves
also.

4.4 Keywords

Custodian: One that has charge of something; a caretaker.

Demand loan: Loan with no specific maturity date, but payable at any time. Only interest is paid
until the principal is paid off, or until the lender demands repayment of principal.
Liability: A required transfer of assets or services that must occur on or by a specified date as a
result of some other event that has already occurred.

4.5 Self Assessment

Fill in the blanks:
1. The monetary functions are also known as the .............. functions of the RBI.

2. Being the monetary authority of the economy, RBI is responsible for ................, ...............
and ................ the monetary policy of India.

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