an in in ndia 12.5
be used for any purpose other than it did set up institutions like IDBI,
redeeming debentures. SIDBI, NABARD, NHB, etc.
The norms are aimed at minimising the risk
of debenture buyers in an NBFC and check the credIt and Monetary PolIcy
mishaps like the ‘Sahara OFCD’ [for Sahara
The policy by which the desired level of money
ODFC see Chapter 14].
flow and its demand is regulated is known as the
credit and monetary policy. All over the world it
reserve Bank oF IndIa is announced by the central banking body of the
The Reserve Bank of India (RBI) was set up in country—as the RBI announces it in India. In
1935 (by the RBI Act, 1934) as a private bank India there has been a tradition of announcing it
with two extra functions—regulation and control twice in a financial year—before the starting of
of the banks in India and being the banker of the busy and the slack seasons. But in the reform
the government. After nationalisation in 1949, it period, this tradition has been broken. Now the
emerged as the central banking body of India and RBI keeps modifying this as per the requirement
it did not remain a ‘bank’ in the technical sense. of the economy, though the practice of the two
Since then, the governments have been handing policy announcements a year still continues.
over different functions4 to the RBI, which stand In India, a debate regarding autonomy to
today as given below: the RBI regarding announcement of the policy
(i) It is the issuing agency of the currency started when the Narasimham Committee-I
and coins other than rupee one currency recommended on these lines. As the Governor
and coin (which are issued by Ministry RBI it was Bimal Jalan who vocally supported the
of Finance itself with the signature of the idea. No such move came from the governments
Finance Secretary on the note). officially, but it is believed that the RBI has been
(ii) Distributing agent for currency and coins given almost working autonomy in this area. In
issued by the Government of India. most of the developed economies, the central
(iii) Banker of the government. bank functions with autonomous powers in this
area (bifurcation of politics from the economics).
(iv) Bank of the banks/Bank of last resort.
Though we lack such kind of officially open
(v) Announces the credit and monetary
autonomy for the RBI, we have learnt enough by
policy for the economy.
now and are better off today.
(vi) Stabilising and targeting (CPI–C) the
RBI uses many instruments/tools to put in
rate of inflation.
place the required kind of credit and monetary
(vii) Stabilising the exchange rate of rupee. policy such as—CRR, SLR, Bank Rate, Repo &
(viii) Keeper of the foreign currency reserves. Reverse Rates, MSF Rate, OMOs, etc. on which
(ix) Agent of the Government of India in the it has regulatory controls.
(x) Performing a variety of developmental crr
and promotional functions under which The cash reserve ratio (CRR) is the ratio (fixed by
the RBI) of the total deposits of a bank in India
4. Based on the RBI Nationalisation Act, 1949 and
further announcements of the, Ministry of Finance, which is kept with the RBI in the form of cash.
Government of India. This was fixed to be in the range of 3 to 15 per