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.
                IMF.
          (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