Reserve Bank of India (RBI), operation,function, complaints

Reserve Bank of India Home Banks in India

Reserve Bank of India (RBI) is India's central bank - it formulates, implements and monitors India's monetary policy. Reserve bank of India was established in 1935 and nationalised in 1949. It is fully owned by the Government of India and its headquarters are located in Mumbai. RBI has 22 regional offices in the various state capitals of India. It has a majority stake in the State Bank of India

The main functions of the Reserve Bank of India are:
1. The Reserve Bank of India is the regulator and supervisor of the financial system:
2. RBI defines the guidelines according to which the banking operations within which the country's banking and financial system functions. It tries to protect depositors' interests and provides cost-effective banking services to the public by monitoring the functioning of banks. If a bank does not solve a customers problem they can approach the Reserve bank of India through the Banking Ombudsman Scheme
3. Foreign exchange inflow and outflow is regulated by the the Foreign Exchange Management Act, 1999 of RBI. All money transfer out of India, for both personal and trade purposes is subject to limits defined by RBI

4. The Reserve Bank of India issues currency - notes and coins of various denominations. It also issues and exchanges or destroys damaged currency and coins not fit for circulation. The design of the currency is periodically modified to prevent circulation of fake currency.

5. The RBI is the banker to the Government of India. It performs merchant banking function for the central and the state governments. Government departments bank with the Reserve bank of India. For example, in Mumbai, the Income tax department issues tax refunds drawn on the Reserve bank of India.

6 RBI is the banker to all major banks. It maintains banking accounts of all scheduled banks in India. Deposits of up to Rs 1 lakh in scheduled banks are insured. Cash withdrawal tax is applicable only for withdrawals from scheduled banks. Smaller co-operative banks usually are not scheduled banks. Bank interest rates increase or decrease according to the RBI lending rates

7.The Reserve Bank of India also regulates the trade of gold. Currently 17 Indian banks are involved in the trade of gold in India. RBI has invited applications from more banks for direct import of gold to curb illegal trade in gold and increase competition in the market

8. In March 2006, RBI has issued know your customer guidelines for non banking finance companies (NBFC). Customer whose deposit balance with the NBFC is less than Rs 50,000 or outstanding credit more than Rs 1 lakh need not provide all the documents. The customers will be categorized as low risk, medium risk and high risk. Sahara India is one of the largest NBFC in India.

9. RBI buys and sells foreign currency to maintain the exchange rate of Indian Rupee vs foreign currencies like the US Dollar, Euro, Pound sterling and Japanese yen. Trends in exchange rate value for these currencies are available on their website.

10. Depending on the liquidity in the money markets, RBI sets the maximum interest rate , Indian banks can offer on NRI dollar deposits. From March 2006, banks can offer an interest rate equal to the London Interbank Offered Rate (LIBOR) - an international benchmark rate on dollar deposits.

11. The cash reserve ratio (CRR) is the percentage of deposits that banks in India should keep with RBI . This also depends on the liquidity in the money markets and is currently 5%. The reverse repo rate is the rate at which RBI absorbs funds from banks.

12. RBI also regulates the opening /installation of ATM (Automatic Teller Machines). It is trying to increase the density of the ATMs in rural areas. Fresh currency notes for ATMs are supplied by RBI
13. There are about 1050 clearing houses which settle transactions related to cheques, drafts and pay orders. The State Bank of India manages 567 clearing houses, mainly in the smaller cities and towns.

14. The annual monetary policy is announced in April every year.

15. An outstation cheque from metro cities (Mumbai, Delhi, Chennai, Kolkatta) costs banks only 50 paise for clearing through the RBI clearing system but banks like ICICI bank charge Rs 100 for clearing the cheque. RBI has asked banks to display the service charges on their website, but only 5 banks have complied so far.

16. RBI regulates the opening of branches by banks and ensures that they follow the Know Your Customer guidelines

How to complain about bank service - Banking Ombudsman Scheme

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