Economic integration Economic integration is the unification of economic policies between different states through the partial or full

abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration. This is meant in turn to lead to lower prices for distributors and consumers with the goal of increasing the combined economic productivity of the states. Definition of 'Economic Integration' An economic arrangement between different regions marked by the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies. The aim of economic integration is to reduce costs for both consumers and producers, as well as to increase trade between the countries taking part in the agreement. Levels of Economic Integration There are about five additive levels of economic integration impacting the global landscape:

Free trade. Tariffs (a tax imposed on imported goods) between member countries are abolished or significantly reduced. Each member country keeps its own tariffs in regard to third countries. The general goal is to develop economies of scale and comparative advantages, which promotes economic efficiency. Custom union. Sets common external tariffs among member countries, implying that the same tariffs are applied to third countries. Custom unions are particularly useful to level the competitiveness playing field and address the problem of re-exports (using preferential tariffs in one country to enter another country). Common market. Factors of production, such a labor and capital, are free to move within member countries, expanding scale economies and comparative advantages. Thus, a worker in a member country is able to move and work in another member country. Economic union. Monetary and fiscal policies between member countries are harmonized, which implies a level of political integration. A further step concerns a monetary union where a common currency is used, such as with the European Union (Euro). Political union. Represents the potentially most advanced form of integration with a common government and were the sovereignty of member country is significantly reduced. Only found within nation states, such as federations where there is a central government and regions having a level of autonomy.

North American Free Trade Agreement (NAFTA) In 1994, the North American Free Trade Agreement (NAFTA) came into effect, creating one of the worlds largest free trade zones and laying the foundations for strong economic growth and rising prosperity for Canada, the United States, and Mexico. Since then, NAFTA has demonstrated how free trade increases wealth and competitiveness, delivering real benefits to families, farmers, workers, manufacturers, and consumers. The NAFTA partners have created this website to provide Canadians, Americans, and Mexicans with information about how NAFTA works and the many ways in which it has improved the lives of North Americans. 1. What is NAFTA? The North American Free Trade Agreement (NAFTA) is a comprehensive trade agreement that sets the rules of trade and investment between Canada, the United States, and Mexico. Since the agreement entered into force on January 1, 1994, NAFTA has systematically eliminated most tariff and non-tariff barriers to free trade and investment between the three NAFTA countries. 2. How does NAFTA work? NAFTA is a formal agreement that establishes clear rules for commercial activity between Canada, the United States, and Mexico. NAFTA is overseen by a number of institutions that ensure the proper interpretation and smooth implementation of the

Agreements provisions. For more information about NAFTA trilateral institutions, please see About NAFTA. 3. What are the benefits of NAFTA? Since NAFTA came into effect, trade and investment levels in North America have increased, bringing strong economic growth, job creation, and better prices and selection in consumer goods. North American businesses, consumers, families, workers, and farmers have all benefited. For more information about NAFTAs many benefits, please see: Results: North Americans Are Better Off After 15 years of NAFTA. 4. How can I make NAFTA work for my business? NAFTA provides North American businesses with better access to materials, technologies, investment capital, and talent available across North America. For examples of companies that are succeeding under NAFTA, please see Success Stories. 5. What are the NAFTA rules of origin? Each NAFTA country forgoes tariffs on imported goods originating in the other NAFTA countries. Rules of origin enable customs officials to decide which goods qualify for this preferential tariff treatment under NAFTA. The negotiators of the Agreement sought to make the rules of origin very clear so as to provide certainty and predictability to producers, exporters, and importers. They also sought to ensure that NAFTAs benefits are not extended to goods imported from non-NAFTA countries that have undergone only minimal processing in North America. 6. How do I obtain a NAFTA certificate of origin? The procedures for presenting a claim to each NAFTA partner are different. To certify that goods qualify for the preferential tariff treatment under NAFTA, the exporter must complete a certificate of origin. A producer or manufacturer may also complete a certificate of origin to be used as a basis for an exporters certificate of origin. To make a claim for NAFTA preference, the importer must possess a certificate of origin at the time the claim is made. Further information on Customs procedures can be obtained by contacting the Customs administrations of each NAFTA country. For more information, please visit the Canada Border Services Agency, U.S. International Trade Administration, or Mexicos Ministry of the Economy (Spanish only). 7. Who is permitted temporary entry into another NAFTA country under the NAFTA rules? Chapter 16 of NAFTA permits the temporary cross-border movement of business travelers within the NAFTA region. Four categories of travelers are eligible for temporary entry from one NAFTA country into another: business visitors, traders and investors, intra-company transferees, and professionals. 8. How did NAFTA affect tariff rates within North America? On January 1, 2008, the last remaining tariffs were removed within North America. When implemented, NAFTA immediately lifted tariffs on the majority of goods produced

by the NAFTA partners and called for the phased elimination, over 15 years, of most remaining barriers to cross-border investment and to the movement of goods and services between the three countries. 9. How can I obtain information on NAFTA Custom procedures? Information on Customs procedures can be obtained by contacting the Customs administrations of each NAFTA country. For more information, please visit: Canada Border Services Agency, U.S. International Trade Administration, and Mexicos Ministry of the Economy (Spanish only).

North American Free Trade Agreement

A number of NAFTA institutions work to ensure smooth implementation and day-to-day oversight of the Agreements provisions.
Free Trade Commission

Made up of ministerial representatives from the NAFTA partners. Supervises the implementation and further elaboration of the Agreement and helps resolve disputes arising from its interpretation. Oversees the work of the NAFTA committees, working groups, and other subsidiary bodies.
NAFTA Coordinators

Senior trade department officials designated by each country. Responsible for the day-to-day management of NAFTA implementation.
NAFTA Working Groups and Committees

Over 30 working groups and committees have been established to facilitate trade and investment and to ensure the effective implementation and administration of NAFTA. Key areas of work include trade in goods, rules of origin, customs, agricultural trade and subsidies, standards, government procurement, investment and services, cross-border movement of business people, and alternative dispute resolution.

NAFTA Secretariat

Made up of a national section from each member country. Responsible for administering the dispute settlement provisions of the Agreement and for administering dispute resolution processes under Chapter 14, Chapter 19 and Chapter 20. Also has certain responsibilities related to the Chapter 11 dispute settlement provisions concerning investment. Maintains a court-like registry relating to panel, committee, and tribunal proceedings. Maintains a tri-national website containing up-to-date information on past and current disputes.
Commission for Labor Cooperation

Created to promote cooperation on labor matters among NAFTA members and the effective enforcement of domestic labor law. Consists of a Council of Ministers (comprising the labor ministers from each country) and a Secretariat, which provides administrative, technical, and operational support to the Council and implements an annual work program. Departments responsible for labor in each of the three countries serve as domestic implementation points. For more information, please visit www.naalc.org.
Commission for Environmental Cooperation

Established to further cooperation among NAFTA partners in implementing the environmental side accord to NAFTA and to address environmental issues of continental concern, with particular attention to the environmental challenges and opportunities presented by continent-wide free trade. Consists of a Council (comprising the environment ministers from each country), a Joint Public Advisory Committee (a 15-member, independent volunteer body that provides advice and public input to Council on any matter within the scope of the environmental accord), and a Secretariat (which provides administrative, technical, and operational support). For more information on topics that have been reviewed by the Council, please visit www.cec.org/council.

NAFTA Background

In 1994, the North American Free Trade Agreement (NAFTA), a state-of-the-art market-opening agreement, came into force. Since then, NAFTA has systematically eliminated most tariff and non-tariff barriers to trade and investment between Canada, the United States, and Mexico. By establishing a strong and reliable framework for investment, NAFTA has also helped create the environment of confidence and stability required for long-term investment. NAFTA was preceded by the Canada-U.S. Free Trade Agreement. For details about NAFTAs impact on North Americans, please see Results: North Americans Are Better Off After 15 Years of NAFTA..
NAFTA ~ Chronology of Events

June 10, 1990: Canada, the U.S., and Mexico agree to pursue a free trade agreement February 5, 1991: NAFTA negotiations begin. December 17, 1992: NAFTA is signed by leaders from Canada, the U.S., and Mexico. August 1993: Additional side agreements on labor and the environment are negotiated. January 1, 1994: NAFTA enters into force
The Canada-U.S. Free Trade Agreement

Negotiations toward a free trade agreement between the United States and Canada began in 1985. Sixteen months later, the two nations came together and agreed to the Canada-U.S. Free Trade Agreement (FTA). It was a historic agreement that placed Canada and the United States at the forefront of trade liberalization. Key elements of the Agreement included the elimination of tariffs and the reduction of many non-tariff barriers to trade. The FTA was also among the first trade agreements to address trade in services. It also included a dispute settlement mechanism for the fair and expeditious resolution of trade disagreements, and established a ground-breaking system for the binational review of trade remedy determinations, thereby providing an alternative to domestic judicial review.

In practical terms, Canada and the United States agreed to remove bilateral border measures on traded goods, which included the removal of tariffs on goods such as meat products, fruits and vegetables, beverages, processed foods, live animals, wine, clothing and textiles, fuels, electrical goods and machinery.
Canada-U.S. FTA ~ Chronology of Events

September 26, 1985: Canada proposes a free trade agreement with the United States. October 4, 1987: Substantive negotiations conclude and agreement is reached on the Canada-U.S. Free Trade Agreement. January 2 1988: The Agreement is signed by leaders from Canada and the United States. January 1, 1989: The Canada-U.S. Free Trade Agreement enters into force.

North American Free Trade Agreement

The North American Free Trade Agreement (NAFTA) is a comprehensive agreement that sets the rules for international trade and investment between Canada, the United States, and Mexico. The Agreement is a complex and lengthy document that includes eight sections, 22 chapters, and some 2,000 pages. Some of the most important provisions are highlighted below.
Market Access for Goods

The elimination of duties on thousands of goods crossing borders within North America. Phased-in tariff reductions now complete and special rules for agricultural, automotive, and textile and apparel products. Important rights for NAFTA services providers and users across a broad spectrum of sectors. Special commitments regarding telecommunications and financial services.

Formal dispute resolution processes that help resolve differences that arise in the interpretation or application of NAFTAs rules.
Protection for Foreign Investment

Commitment to treat each others investors and their investments in the territory of the host NAFTA country no less favorably than their own domestic investors. Commitment to provide NAFTA investors with the best treatment given to foreign investors from beyond North America. A transparent and binding dispute resolution mechanism specially designed to deal with investment.
Protection for Intellectual Property

Adequate and effective protection and enforcement of a broad range of intellectual property rights (including through patents, trademarks, copyrights, and industrial designs), while ensuring that the measures that enforce these rights do not themselves become barriers to legitimate trade.
Easier Access for Business Travelers

Easier access for business professionals in hundreds of different professions so that they can travel for business throughout the continent.
Access to Government Procurement

Access to government procurement opportunities at the federal levels in Canada, Mexico, and the United States.
Rules of Origin

NAFTA rules of origin are used to determine whether a good is eligible for preferential treatment under NAFTA. At various times since NAFTA came into effect, the partners have implemented measures to liberalize or expand the list of products that qualify for preferential treatment. Since 2005, for example, the NAFTA partners have implemented two sets of changes to make it easier for traders to qualify for duty-free treatment under NAFTA.

Side Agreements

The NAFTA partners also negotiated two side agreements: the North American Agreement on Environmental Cooperation and the North American Agreement on Labor Cooperation.
Commitment to the Environment

The NAFTA partners signed a parallel agreement addressing environmental issues, the North American Agreement on Environmental Cooperation (NAAEC). Under the NAAEC, the United States, Canada and Mexico have committed to take certain steps to protect the environment, including the obligation that each of the parties will not fail to effectively enforce its environmental laws. A partys failure to meet this environmental obligation is subject to the same type of dispute resolution mechanism that is included in the NAFTA for commercial obligations. In addition, the NAAEC has created a mechanism that allows any citizen or nongovernmental organization to make a submission concerning whether a party is failing to effectively enforce its environmental law. In contrast, commercial obligations are not subject to this type of independent review. Under the NAAEC, the parties also agreed to work cooperatively to address regional environmental concerns, to help prevent potential trade and environmental conflicts, and to promote the effective enforcement of environmental law, among other things. In order to assist with the parties efforts to fulfill these commitmen ts, the partners created an international institution, the Commission for Environmental Cooperation (CEC). For more information, please visit www.cec.org.
Commitment to Labor Cooperation

The NAFTA partners signed a parallel agreement on labor cooperation designed to promote the effective enforcement of each countrys labor laws and regulations and to facilitate further cooperation between NAFTA partners on labor matters. The North American Agreement on Labor Cooperation (NAALC) established the Commission for Labor Cooperation (CLC), consisting of a Ministerial Council and a Secretariat. In the

implementation of the NAALC, the CLC is assisted by National Administrative Officers (NAOs) in each of the three countries. The current work program for labor cooperation focuses on occupational safety and health, employment and job training, labor law, and workers rights and productivity. For more information, please visit www.naalc.org.

Reserve Bank of India

From Wikipedia, the free encyclopedia

Reserve Bank of India

RBI seal

RBI headquarters in Mumbai

Headquarters

Mumbai, Maharashtra

Established

1 April 1935

Governor

Duvvuri Subbarao

Currency

Indian rupee ()

ISO 4217 Code

INR

Reserves

US$302.1 billion [1][Note 1]

Base borrowing rate

7.50%

Base deposit rate

6.00%

Website

http://www.rbi.org.in

The Reserve Bank of India (RBI) is India's central banking institution, which formulates the monetary policy with regard to the Indian rupee. It was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of India Act, 1934.[2] The share capital was divided into shares of 100 each fully paid, which was entirely owned by private shareholders in the beginning.[3] Following India's independence in 1947, the RBI was nationalised in the year 1949.

Purposes and structure[edit source | editbeta]

RBI assumes an important part in the development strategy of the Government of India, and as a leading member of the Alliance for Financial Inclusion (AFI), a global network of financial policymakers from developing and emerging countries working together to increase access to appropriate financial services for the poor. RBI is also a member of the Asian Clearing Union. The general superintendence and

direction of the RBI is entrusted with the 21-member-strong Central Board of Directorsthe Governor (currently Duvvuri Subbarao), four Deputy Governors, two Finance Ministry representatives, ten government-nominated directors to represent important elements from India's economy, and four directors to represent local boards headquartered at Mumbai, Kolkata, Chennai and New Delhi. Each of these local boards consists of five members who represent regional interests, as well as the interests of co-operative and indigenous banks.

History[edit source | editbeta]

19351950[edit

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The old RBI Building in Mumbai

The Reserve Bank of India (RBI) was founded on 1 April 1935 to respond to economic troubles after the First World War. The bank was set up based on the recommendations of the 1926 Royal Commission on Indian Currency and Finance, also known as the Hilton Young Commission[4]. It began according to the guidelines laid down by Dr. B. R. Ambedkar, whose guidelines, working style and outlook were presented to the Hilton Young Commission. When this Commission came to India, under the name of "Royal Commission on Indian Currency and Finance", every member of this Commission was holding Dr. Ambedkar's book titled The problem of the rupee: its origin and its solution.[5] The Commission also was advised by John Maynard Keynes, a member of the Commission.[6][7] The original choice for the seal of RBI was The East India Company Double Mohur, with the sketch of the Lion and Palm Tree. However it was decided to replace the lion with the tiger, the national animal of India. The Preamble of the RBI describes its basic functions to regulate the issue of bank notes, keep reserves to secure monetary stability in India, and generally to operate the currency and credit system in the best interests of the country. The Central Office of the RBI was initially established in Calcutta (now Kolkata), but was permanently moved to Bombay (now Mumbai) in 1937. The RBI also acted as Burma's central bank, except during the years of the Japanese occupation of Burma (194245), until April 1947, even though Burma seceded from the Indian Union in 1937. After the Partition of India in 1947, the Bank served as the central bank for Pakistan until June 1948 when the State Bank of Pakistan commenced operations. Though originally set up as a shareholders bank, the RBI has been fully owned by the Government of India since its nationalization in 1949.[8]

19501960[edit

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In the 1950s, the Indian government, under its first Prime Minister Jawaharlal Nehru, developed a centrally planned economic policy that focused on the agricultural sector. The administration nationalized commercial banks[9] and established, based on the Banking Companies Act of 1949 (later called the Banking Regulation Act), a central bank regulation as part of the RBI. Furthermore, the central bank was ordered to support the economic plan with loans.[10]

19601969[edit

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As a result of bank crashes, the RBI was requested to establish and monitor a deposit insurance system. It should restore the trust in the national bank system and was initialized on 7 December 1961. The Indian government founded funds to promote the economy and used the slogan "Developing Banking". The government of India restructured the national bank market and nationalized a lot of institutes. As a result, the RBI had to play the central part of control and support of this public banking sector.

19691985[edit

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In 1969, the Indira Gandhi-headed government nationalized 14 major commercial banks. Upon Gandhi's return to power in 1980, a further six banks were nationalized.[11] The regulation of the economy and especially the financial sector was reinforced by the Government of India in the 1970s and 1980s.[12] The central bank became the central player and increased its policies for a lot of tasks like interests, reserve ratio

and visible deposits.[13] These measures aimed at better economic development and had a huge effect on the company policy of the institutes. The banks lent money in selected sectors, like agri-business and small trade companies.[14] The branch was forced to establish two new offices in the country for every newly established office in a town. [15] The oil crises in 1973 resulted in increasing inflation, and the RBI restricted monetary policy to reduce the effects.[16]

19851991[edit

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A lot of committees analysed the Indian economy between 1985 and 1991. Their results had an effect on the RBI. The Board for Industrial and Financial Reconstruction, the Indira Gandhi Institute of Development Research and the Security & Exchange Board of India investigated the national economy as a whole, and the security and exchange board proposed better methods for more effective markets and the protection of investor interests. The Indian financial market was a leading example for so-called "financial repression" (Mackinnon and Shaw).[17] The Discount and Finance House of India began its operations on the monetary market in April 1988; the National Housing Bank, founded in July 1988, was forced to invest in the property market and a new financial law improved the versatility of direct deposit by more security measures and liberalisation.[18]

19912000[edit

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The national economy came down in July 1991 and the Indian rupee was devalued.[19] The currency lost 18% relative to the US dollar, and the Narsimahmam Committee advised restructuring the financial sector by a temporal reduced reserve ratio as well as the statutory liquidity ratio. New guidelines were published in 1993 to establish a private banking sector. This turning point should reinforce the market and was often called neo-liberal.[20] The central bank deregulated bank interests and some sectors of the financial market like the trust and property markets.[21] This first phase was a success and the central government forced a diversity liberalisation to diversify owner structures in 1998.[22] The National Stock Exchange of India took the trade on in June 1994 and the RBI allowed nationalized banks in July to interact with the capital market to reinforce their capital base. The central bank founded a subsidiary companythe Bharatiya Reserve Bank Note Mudran Limitedin February 1995 to produce banknotes.[23]

Since 2000[edit

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The Foreign Exchange Management Act from 1999 came into force in June 2000. It should improve the foreign exchange market, international investments in India and transactions. The RBI promoted the development of the financial market in the last years, allowed online banking in 2001 and established a new payment system in 20042005 (National Electronic Fund Transfer).[24]The Security Printing & Minting Corporation of India Ltd., a merger of nine institutions, was founded in 2006 and produces banknotes and coins.[25] The national economy's growth rate came down to 5.8% in the last quarter of 20082009[26] and the central bank promotes the economic development.[27]

Structure[edit source | editbeta]

RBI runs a monetary museum in Mumbai

Central Board of Directors[edit

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The Central Board of Directors is the main committee of the central bank. The Government of India appoints the directors for a four-year term. The Board consists of a governor, four deputy governors, fifteen directors to represent the regional boards, one from the Ministry of Finance and ten other directors from various fields. The Government nominated Arvind Mayaram, as a director of the Central Board of

Directors with effect from August 7, 2012 and vice R Gopalan, RBI said in a statement on August 8, 2012. .[28] The Central Government has nominated Shri Rajiv Takru, Secretary, Department of Financial Services, Ministry of Finance, New Delhi as a director on the Central Board of Directors of the Reserve Bank of India vice Shri D. K. Mittal. Shri Takru's nomination is with effect from February 4, 2013 and until further orders.[29] IJI0-0==0-990YFYU

Governors[edit

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The current Governor of RBI is Duvvuri Subbarao. The RBI extended the period of the present governor up to 2013. There are four deputy governors presently, Deputy Governor K C Chakrabarty, Urjit patel, Anand Sinha and H.R. Khan. Deputy Governor K C Chakrabarty's term has been extended further by 2 years.[30]

Supportive bodies[edit

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The Reserve Bank of India has ten regional representations: North in New Delhi, South in Chennai, East in Kolkata and West in Mumbai. The representations are formed by five members, appointed for four years by the central government and servebeside the advice of the Central Board of Directorsas a forum for regional banks and to deal with delegated tasks from the central board. [31] The institution has 22 regional offices. The Board of Financial Supervision (BFS), formed in November 1994, serves as a CCBD committee to control the financial institutions. It has four members, appointed for two years, and takes measures to strength the role of statutory auditors in the financial sector, external monitoring and internal controlling systems. The Tarapore committee was set up by the Reserve Bank of India under the chairmanship of former RBI deputy governor S. S. Tarapore to "lay the road map" to capital account convertibility. The five-member committee recommended a three-year time frame for complete convertibility by 19992000. On 1 July 2007, in an attempt to enhance the quality of customer service and strengthen the grievance redressal mechanism, the Reserve Bank of India created a new customer service department.

Offices and branches[edit

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The Reserve Bank of India has four zonal offices.[32] It has 19 regional offices at most state capitals and at a few major cities in India. Few of them are located in Ahmedabad, Bangalore, Bhopal,Bhubaneswar, Chandigarh, Chennai, Delhi, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Luck now, Mumbai, Nagpur, Patna, and Thiruvananthapuram. Besides it has 09 sub-offices atAgartala, Dehradun, Gangtok, Kochi, Panaji, Raipur, Ranchi, Shillong, Shimla and Srinagar. The bank has also two training colleges for its officers, viz. Reserve Bank Staff College at Chennai and College of Agricultural Banking at Pune. There are also four Zonal Training Centres atMumbai, Chennai, Kolkata and New Delhi.

Main functions[edit source | editbeta]

Reserve Bank of India regional office, Delhi entrance with the Yakshini sculpture depicting "Prosperity through agriculture".[33]

The RBI Regional Office in Delhi.

The regional office of RBI (in sandstone)in front of GPO(in white) at Dalhousie Square,Kolkata.

Bank of Issue[edit

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Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department.

Monetary authority[edit

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The Reserve Bank of India is the main monetary authority of the country and beside that, in its capacity as the central bank, acts as the bank of the national and state governments. It formulates, implements and monitors the monetary policy as well as it has to ensure an adequate flow of credit to productive sectors.

Regulator and supervisor of the financial system[edit

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The institution is also the regulator and supervisor of the financial system and prescribes broad parameters of banking operations within which the country's banking and financial system functions.Its objectives are to maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective addressing of complaints by bank customers. The RBI controls the monetary supply, monitors economic indicators like the gross domestic product and has to decide the design of the rupee banknotes as well as coins.[34]

Management of foreign exchange[edit

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The RBI is in charge of facilitating the achievement of the goals of the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Issuer of currency[edit

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The bank issues and exchanges or destroys currency notes and coins that are not fit for circulation. The objectives are to give the public an adequate supply of currency of good quality and to provide loans to commercial banks to maintain or improve the GDP. The basic objectives of RBI are to issue bank notes, to maintain the currency and credit system of the country, and to maintain the reserves. RBI maintains the economic structure of the country so that it can achieve the objectives of price stability as well as economic development, because both objectives are diverse in themselves

This article may be confusing or unclear to readers. Please help us clarify the article; suggestions may be found on the talk page. (July 2013)

Banker of banks[edit

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Nagpur branch holds most of India's gold deposits

RBI also works as a central bank where commercial banks are account holders and can deposit money. RBI maintains banking accounts of all scheduled banks.[35] Commercial banks create credit. It is the duty of the RBI to control the credit through the CRR, bank rate and open market operations. As the bankers' bank, the RBI facilitates the clearing of cheques between the commercial banks and helps inter-bank transfer of funds. It can grant financial accommodation to schedule banks. It acts as the lender of last resort by providing emergency advances to the banks. It supervises the functioning of the commercial banks and take action against it if need arises.

Detection of fake currency[edit source | editbeta]

In order to curb the fake currency menace, RBI has launched a website to raise awareness among masses about fake notes in the market.www.paisaboltahai.rbi.org.in provides information about identifying fake currency.[36]

Developmental role[edit

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The central bank has to perform a wide range of promotional functions to support national objectives and industries.[10] The RBI faces a lot of inter-sectoral and local inflation-related problems. Some of this problems are results of the dominant part of the public sector.[37]

Related functions[edit

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The RBI is also a banker to the government and performs merchant banking function for the central and the state governments. It also acts as their banker. The National Housing Bank (NHB) was established in 1988 to promote private real estate acquisition.[38] The institution maintains banking accounts of all scheduled banks, too. RBI on 7 August 2012 said that Indian banking system is resilient enough to face the stress caused by the drought like situation because of poor monsoon this year.[39]

Policy rates and reserve ratios[edit source | editbeta]

Policy rates, Reserve ratios, lending, and deposit rates as of 14, May, 2013

Bank Rate

10.25%(16/7/2013)

Repo Rate

7.25%

Reverse Repo Rate

6.25%

Cash Reserve Ratio (CRR)

4%

Statutory Liquidity Ratio (SLR)

23.0%

Base Rate

9.75%10.50%

Reserve Bank Rate

4%

Deposit Rate

8.50%9.0%

Bank Rate[edit

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RBI lends to the commercial banks through its discount window to help the banks meet depositors demands and reserve requirements for long term. The Interest rate the RBI charges the banks for this purpose is called bank rate. If the RBI wants to increase the liquidity and money supply in the market, it will decrease the bank rate and if RBI wants to reduce the liquidity and money supply in the system, it will increase the bank rate. As of 16 July 2013, the bank rate was 10.25%.

Reserve requirement cash reserve ratio (CRR)[edit

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Every commercial bank has to keep certain minimum cash reserves with RBI. Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate, [Before the enactment of this amendment, in terms of Section 42(1) of the RBI Act, the Reserve Bank could prescribe CRR for scheduled banks between 5% and 20% of total of their demand and time liabilities]. RBI uses this tool to increase or decrease the reserve requirement depending on whether it wants to effect a decrease or an increase in the money supply. An increase in Cash Reserve Ratio (CRR) will make it mandatory on the part of the banks to hold a large proportion of their deposits in the form of deposits with the RBI. This will reduce the size of their deposits and they will lend less. This will in turn decrease the money supply. Due to a Reduction in CRR by 0.25% (25 basis points cut in Cash Reserve Ratio(CRR)) on 17 September 2012, Rs 17,000 crore was released into the system/market. The RBI lowered the CRR by 25 basis points to 4.25% on 30 October 2012, a move it said would inject about 175 billion rupees into the banking system in order to pre-empt potentially tightening liquidity. The latest CRR is 4% (wef 09/02/2013).

Statutory Liquidity ratio (SLR)[edit

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Apart from the CRR, banks are required to maintain liquid assets in the form of gold, cash and approved securities. Higher liquidity ratio forces commercial banks to maintain a larger proportion of their resources in liquid form and thus reduces their capacity to grant loans and advances, thus it is an anti-inflationary impact. A higher liquidity ratio diverts the bank funds from loans and advances to investment in government and approved securities.

In well-developed economies, central banks use open market operationsbuying and selling of eligible securities by central bank in the money marketto influence the volume of cash reserves with commercial banks and thus influence the volume of loans and advances they can make to the commercial and industrial sectors. In the open money market, government securities are traded at market related rates of interest. The RBI is resorting more to open market operations in the more recent years. Generally RBI uses three kinds of selective credit controls: 1. 2. 3. Minimum margins for lending against specific securities. Ceiling on the amounts of credit for certain purposes. Discriminatory rate of interest charged on certain types of advances.

Direct credit controls in India are of three types: 1. 2. 3. Part of the interest rate structure i.e. on small savings and provident funds, are administratively set. Banks are mandatory required to keep 23% of their deposits in the form of government securities. Banks are required to lend to the priority sectors to the extent of 40% of their advances.

Mujhe toh chand mil gaya, aaj teri aankhon mein Karoon kya aasmaan bataa, neendhon bin main raaton mein Sabhi bechain dhadkane, rakh de mere haathon pe Zara uljhi hai saans toh, rakh de meri saanson pe Sharma rahi hain nazrein, tere chehre se jo guzre Sharma rahi hain nazrein, tere chehre se jo guzre Main kaise keh doon dil ki yeh dastaan Ishq hothon se toh hota nahi bayaan Iss liye pyaar mein aankhein bani zubaan Ishq hothon se toh hota nahi bayaan Iss liye pyaar mein aankhein bani zubaan Na na na.. pyaar mein Chehre pe tere ghabrahatein hain kyun Ruki ruki kadmon ki aahatein hain kyun Sehma hai pyaar ke, raasto pe dil Mujhko zara sa tu, faaslo pe mil Dil mil jaaye toh kaisi yeh dooriyan Ishq hothon se toh hota nahi bayaan Iss liye pyaar mein aankhein bani zubaan Ishq hothon se toh hota nahi bayaan Iss liye pyaar mein aankhein bani zubaan Ho dil yeh mera kisi ke paas beh gaya Saanson mein ek naya ehsaas reh gaya Hota hai sabko yeh tujhe bhi hua Poori hui hai tere khawabon ki dua Na jaane kaise badla mera jahaan Ishq hothon se toh hota nahi bayaan Iss liye pyaar mein aankhein bani zubaan Ishq hothon se toh hota nahi bayaan Iss liye pyaar mein aankhein bani zubaan Ishq hothon se toh hota nahi bayaan Iss liye pyaar mein aankhein bani zubaan Ho sharma rahi hain nazre, tere chehre se jo guzre Sharma rahi hain nazre mere chehre se jo guzre Toh kaise keh doon, dil ki yeh dastaan Ishq hothon se toh hota nahi bayaan Iss liye pyaar mein aankhein bani zubaan Ishq hothon se toh hota nahi bayaan Iss liye pyaar mein aankhein bani zubaan Na na na.. pyaar mein