Role of RBI Video Lecture | Business Economics for CA Foundation

hi guys Lavinia one of my students
requested me to do a video on RBI now I
have done a video on RBI before but
nonetheless here is a much more
simplified video when it comes to
explaining what RBI actually does now
firstly RP is considered to be the
central bank now in any country when you
call a bank as a central bank it means
the bank is into regulation work they
are not into opening of accounts fun
transfer current account openings things
like that they are mostly into
regulation of banks now for example in
India you have RBI which is the central
bank in America you have something
called as the federal bank but there's a
slight difference between the federal
bank and the RBI for the entire India
you have just one RBI but for federal
banks you have different federal banks
for different zones or States in America
now RBI is a fairly old institution and
they've been established since 1935 now
RBI did not get its full power until
India got its independence but what
makes RP is such a special institution
is the kind of work that these guys do
is pretty awesome when I say the kind of
work they do is awesomest because it's
because of this Bank
India has seen so much of financial
stability in 2008 there were dozens of
banks in America that shut down the
cause of recession Lehman Brothers was
the biggest I could say when it comes to
closing down in 2008 even though the
recession was more or less a worldwide
phenomenon I never saw a single bank in
India face any financial crunch or get
in to severe losses because of what
happened in 2008 and that's only because
RBI has insured such strong degrees of
financial stability that's what makes
this institution so powerful and that's
what makes India so financially stable
and
our PA has done a really amazing job for
something like that
now let's look at what RBI does firstly
currency control controlling the amount
of notes in circulation is one of the
things that they do but I'm more fond of
the security that they put in for these
currency notes I mean just look at the
detailed printing that is there on these
currency note you would be surprised
just look under a magnifying glass just
put up a 10 rupee note or 100 rupee note
and you will see how detail the patterns
are when it comes to printing and you
might have seen this in the news
recently RBI came out with the rule that
said if you have any of these old 500
rupee notes where in the date of
printing of these notes that is the year
of printing on these notes is not there
then you are required to give it back to
the bank and exchange it for a newly
printed 500 rupee note that again is one
of their functions when it comes to
maintaining security counterfeiting is a
huge problem in the country and RBI is
doing as much as they can to increase
the security on these currency notes and
then CRR and SLR rates I have mentioned
this before in another video CR R stands
for cash reserve ratio SLR stands for
statutory liquidity ratio now there is a
certain amount of cash a bank has to
maintain with RBI that is they should
take cash from their account and leave
it in RBI account that is what they
refer to as CRR the other one that is
there as SLR that a statutory liquidity
ratio this is the amount of cash a bank
must leave idle in their own account now
they have this because this is one of
the base in which RPI is able to control
inflation okay if they reduce the CRR
okay if they reduce the CRR the bank has
got more amount of funds it can give out
in the form of loans when that happens
there is a good possibility that
inflation will go up so RBI plays around
with these different rates CRR and SLR
to ensure that in
remain still one more thing that they do
is they are lenders to banks and also
they borrow from the banks as well also
a way to control inflation again repo is
what the banks go about borrowing when
it comes to RBI and that is when the
bank wants to borrow money from RBI they
need to pay a particular rate of
interest that's what they referred to as
the repo rate if the other one has
reverse repo and RBI wants to borrow
money from a bank that's what they
referred to as a reverse repo rate of
course the reverse repo rate is always
lesser than the repo rate RP I will pay
you less in case the borrow money from
you you pay more to RPM and you borrow
money from that that's one of the
biggest revenue sources for RP I then
general banking regulations are one of
the new banking regulations RPI has put
in is when it comes to gold loans now
when it comes to gold loans there were a
lot of people who would play around with
the value of gold
now RBI had recently said that 60% of
the value of gold can be given out as
the form of a loan that is if I deposit
hundred grams of gold I can get only
sixty percent of the hundred grams
market value of gold as a form of loan
mana Proms biggest business is through
this so what these guys would do was
since it's only mentioned as value of
gold they were able to play around with
this rule slightly bend the rule so what
these guys would do was they would
consider the market value of gold plus
the taxes on this plus the wastage on
this as well and come to a big total
value let's say four hundred grams of
gold to make it into what you will tree
you would lose five grams of gold so the
actual value they would consider would
be 105 grams and plus the taxes that you
may have paid on buying the score so
that would be a bigger value than just
looking at the market value of gold and
these institutions could give more money
to the borrowers now Harvey I came out
with the rule that said when we
mentioned value of gold it's just the
value you cannot go about adding taxes
you cannot go about adding based rich
and any other value that comes to your
head that's one of the rules that they
put in they are very very strict when it
comes to the movement of money and the
way in which banks operate then issuing
banking licenses this is a big thing in
the recent news
one of the criteria when it comes to
acquiring a banking license as a capital
investment of 500 crores that is you
should have minimum capital of 500
crores the old rule was you're supposed
to have 100 crores now they've increased
it to 500 crores you can see how big the
capital investment is so when that
happened there were a lot of bidders for
acquiring a banking license now there's
a difference between a banking license
and a non banking financial company
license in the case of a banking license
you are able to accept demand deposits
that is I deposit money now and I can
withdraw it any time I feel like
non-banking financial companies they get
a different license when I say long
banking financial companies I mean
Shriram chit funds Manappuram to finance
all these guys come under non banking
financial companies getting a license
for that business is significantly
easier than trying to get a banking
license here so that's one more thing
that they do in order to get a banking
license it's a fairly difficult thing
these days considering the new
regulations by RPI then one last
important function of RPI that would be
the money market regulation money market
is for short term borrowings that is you
can borrow money for one day or up to
one year now there are a variety of
money market instruments or one of my
favorite being interbank deposits like
for example there is a bank which is
short of funds their deficit the funds
and they need to borrow money from a
bank that is surplus of funds now when
the bank which is surplus in terms of
funds
gives it to the bank that is a deficit
to funds they need to pay a certain rate
of interest that is the bank borrowing
the sneaks
a certain rate of interest this this one
of the biggest money market transactions
that you find in India a bank which is
short of funds borrows money and they
pay a small rate of interest and usually
the maturity on these loans are two
three months and that is something which
RBI regulates there are also other money
market instruments like Treasury bills
commercial paper there is even interbank
how did he mention interbank deposits
quite a few in fact when it comes to
money market money market in India is
not a very popular form of trading the
reason is there is not really a big
market where you find people who are
severely short of funds in the need to
borrow the same from different banks
like I said before RPI has maintained
that standard and that stability and
make sure that operations by banks are
carried out smoothly so this is what you
have when it comes to the different
things RPI does I hope you found my
video helpful do subscribe to my videos
go to my website weapon MK is calm the
you are endless here you will find quite
a few interesting articles which you can
read so thank you for your time guys
have a nice day bye