RESERVE BANK OF INDIA

History

The Reserve Bank of India was established on April 1,1935 in accordance with the provisions of theReserve Bank of India Act, 1934.

The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated.

Though originally privately owned,since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

PREAMBLE

To regulate the issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.

To have a modern monetary policy framework to meet the challenge of an increasingly complex economy.

To maintain price stability while keeping in mind the objective of growth.

STRUCTURE

The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.

The directors are appointed/nominated for a period of four years.

CONSTITUTION

Official Directors (central board of directors)

?Full-time:Governor and not more than four Deputy Governors

Non-Official Directors

?Nominated by Government:ten Directors from various fields and two government Official

?Others:four Directors -one each from four local boards (regional)

MAIN FUNCTIONS

1. Monetary Authority:

It implements and monitors the monetary policy and ensures price stability while keeping in mind the objective of growth.

An amendment toRBIAct, 1934, was made in May 2016, providing the statutory basis for the implementation of theflexible inflation targeting framework.

Section 45ZB of the amended RBI Act, 1934, also provides for an empowered six-member Monetary Policy Committee (MPC)to be constituted by the Central Government by notification in the Official Gazette

MONETARY POLICY COMMITTEE

It was created in 2016.

It was created to bring transparency and accountability in deciding monetary policy.

MPC determines the policy interest rate required to achieve the inflation target.

Committeecomprises of six members where Governor RBI acts as an ex-officio chairman. Three members are from RBI and three are selected bygovernment.

Inflationtarget is to be set once in a five year. It is set by the Government of India, in consultation with the Reserve Bank.

Currentinflation target is pegged at 4% with -2/+2 tolerance till March 31, 2021.

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REGULATOR AND SUPERVISOR OF THE FINANCIAL SYSTEM:

Prescribes broad parameters of banking operations within which the country's banking and financial system functions such as issuing licenses, branch expansion,liquidityof assets,amalgamationof banks etc.

Objective: maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services such as commercial banking, co-operative banking, to the public.

MANAGER OF FOREIGN EXCHANGE:

Manages the Foreign Exchange reserves of India.

It facilitates external trade and payment and promotes orderly development and maintenance of foreign exchange market in India.

It also maintains external value of rupee.

ISSUEROF CURRENCY:

Issues and exchanges or destroys currency and coins not fit for circulation.

Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.

DEVELOPMENTAL ROLE:

Performs a wide range of promotional functions to support national objectives such as making institutional arrangements for rural or agricultural finance.

Commercial banks lend loans to small-scale industrial units as per the directives (Priority Sector Lending) issued by the Reserve Bank ofIndiatime to time.

FINANCIAL INCLUSION:

The Reserve Bank has selected abank ledmodel for financial inclusion in India. RBI has undertaken a series of policy measures. Some of the important ones are:

?No Frills Accounts –account either with nil or very low minimum balance as well as charges that would make such accounts accessible to vast sections ofpopulation.

?Use of Technology –devices such as ATMs,hand helddevices to identify user accounts through a card and biometric identifier,Deposit takingmachines and Internet banking and Mobile banking facility to provide the banking services to all sections of society with more ease.

RELATED FUNCTIONS:

Banker to the Government: performs merchant banking function for the central and the state governments.

It is entrusted with central govt.’s money, remittances, exchange and manages its public debt as well.

Banker to banks: maintains banking accounts of all scheduled banks. It also acts aslenderof last resorts by providingfundto banks.

INDEPENDENCE OF RBI

Under section 7 of the RBI Act, the central government may from time to time give such directions to the RBI as it may, after consultation with the Governor of the Bank, consider necessary in the public interest. Moreover, there is no legal act mandatingautonomyof the RBI.

Yet, RBI has always been looked upon as an autonomous body which has under its umbrella all commercial banks, be it PSBs or private banks or foreign banks.

It is not only vested with the powers to formulate the monetary policy but also to monitor the functioning of all banks.

To play its role effectively, autonomy in its functioning issinequa non for RBI.

However, the independence of RBI has been challenged many times due to a continued tug of war for wresting more power between the bank and the govt.

THE MAIN REASONS FOR THIS HAVE BEEN

?RBI’s failure to check the growth of Non Performing Assets.

?Reduced liquidity in the economy due totightmonetary policy followed by RBI.

?Corrective measurestakenby RBI to clean up the banking system whicharenot seen very positively by the government

?Clashbetweenshort termpopulist agenda of the government andlong termview for price stability taken by RBI.

?Regulation of Public Sector Banks: One important limitation is that the Reserve Bank is statutorily limited in undertaking the full scope of actions against public sector banks (PSBs) –such as asset divestiture, replacement of management and Board, license revocation, and resolution actions such as mergers or sales ––all of which it can and does deploy effectively in case of private banks.

?Erosion of statutory powers of the central bank through piece-meal legislative amendments that directly or indirectly eat atseparationof the central bank from the government.

RBI’S IMPORTANT PUBLICATION (HALF YEARLY)

I.Financial Stability Report

II.Monetary Policy Report

III.Report on Financial Review

SEBI

About

SEBI is astatutory bodyestablished on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.

The basic functions of the Securities and Exchange Board of India is to protect the interests of investors in securities and to promote and regulate the securities market.

BACKGROUND

?Before SEBI came into existence, Controller of Capital Issues was the regulatory authority; it derived authority from the Capital Issues (Control) Act, 1947.

?In April, 1988 the SEBI was constituted as the regulator of capital markets in India under a resolution of the Government of India.

?Initially SEBI was a non statutory body without any statutory power.

?It became autonomous and given statutory powers by SEBI Act 1992.

?The headquarters of SEBI is situated in Mumbai. The regional offices of SEBI are located in Ahmedabad, Kolkata, Chennai and Delhi.

STRUCTURE

?SEBI Board consists of a Chairman and several other whole time and part time members.

?SEBI also appoints various committees, whenever required to look into the pressing issues of that time.

?Further, a Securities Appellate Tribunal (SAT)has been constituted to protect the interest of entities that feel aggrieved by SEBI’s decision.

?SAT consists of a Presiding Officer and two other Members.

?It has the samepowers as vested in a civil court. Further, if any person feels aggrieved by SAT’s decision or order canappeal to the Supreme Court.

SECURITIES APPELLATE TRIBUNAL (SAT)

SAT is a statutory bodyestablished under the provisions of the Securities and Exchange Board of India Act, 1992.

It is to hear and dispose of appeals against orders passed by the Securities and Exchange Board of India or by an adjudicating officer under the Act; and to exercise jurisdiction, powers and authority conferred on the Tribunal by or under this Act or any other law for the time being in force.

Consequent to government notification dated 27thMay, 2014; SAT hears and disposes of appeals against orders passed by the Pension Fund Regulatory and Development Authority (PFRDA) under the PFRDA Act, 2013.

Further, in terms of government notification dated 23rd March, 2015, SAT hears and disposes of appealsagainst orders passed by theInsurance Regulatory Development Authority of India (IRDAI) under the Insurance Act, 1938, theGeneral Insurance Business (Nationalization) Act, 1972and theInsurance Regulatory and Development Authority Act, 1999and the Rules and Regulations framed there under.

POWERS AND FUNCTIONS OF SEBI

SEBI is aquasi-legislative and quasi-judicial bodywhich can draft regulations, conduct inquiries, pass rulings and impose penalties.

It functions to fulfillthe requirements of three categories –

?Issuers –By providing a marketplace in which the issuers can increase their finance.

?SEBI Chairman has the authority to order"search and seizure operations". SEBI board can also seek information, such as telephone call data records, from any persons or entities in respect to any securities transaction being investigated by it.

?SEBI perform the function of registration and regulation of the working of venture capital funds and collective investment schemes including mutual funds.

?It also works for promoting and regulating self-regulatory organizations and prohibiting fraudulent and unfair trade practices relating to securities markets