Introduction of RBI Reserve Bank of India is also known as India's Central Bank. It was established on Ist April 1935. Although the bank was initially owned privately, it has been taken up the Government of India ever since, it was nationalized. The bank has been vested with immense responsibility of reviewing and reconstructing the economic stability of the country by formulating economic policies and ensuring a proper exchange of currency. In this regard, the Reserve Bank of India is also known as the banker of banks The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as:"..to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage." The Preamble of the RBI speaks about the basic functions of the bank. It deals with the issuing the bank notes and keeping reserves in order to secure monetary stability in the country. It also aims at operating and boosting up the currency and credit infrastructure of India. The origins of the Reserve Bank of India can be traced to 1926, when the Royal Commission on Indian Currency and Finance — also known as the Hilton-Young Commission ~ recommended the creation of a central bank for India to separate the control of currency and credit from the Government and to augment banking facilities throughout the country. The Reserve Bank of India Act of 1934 established the Reserve Bank and set in motion a series of actions culminating in the start of operations in 1935, nee then, the Reserve Bank’s role and functions have undergone ‘numerous changes, as the nature of the Indian economy and financial sector changed.‘items Wg Somengevi Wim me ‘iivwaaiet enh Origins of the Reserve Bank of India 1926: The Royal Commission on Indian Currency and Finance recommended creation of a central bank for India. 1927: A bill to give effect to the above recommendation was introduced in the Legislative Assembly, but was later withdrawn due to lack of agreement among various sections of people. 1933: The White Paper on Indian Constitutional Reforms recommended the creation of a Reserve Bank. A fresh bill was introduced in the Legislative Assembly. 1934: The Bill was passed and received the Governor General’s assent 1935: The Reserve Bank commenced operations as India’s central bank on April | as a private shareholders’ bank with a paid up capital of rupees five crore (rupees fifty million). 1942: The Reserve Bank ceased to be the currency issuing authority of Burma (now Myanmar). 1947: The Reserve Bank stopped acting as banker to the Government of Burma. 1948: The Reserve Bank stopped rendering central banking services to Pakistan. 1949: The Government of India nationalised the Res Bank (Transfer of Public Ownership) Act ve Bank under the Reserve nwHistory of Reserve Bank of India ‘The central bank was founded in 1935 to respond to economic troubles afier the First World War. The Reserve Bank of India was set up on the recommendations of the Hilton Young Commission. The commission submitted its repat in the year 1926, though the bank was not set up for another nine years. The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as to regulate the issue of bank notes, to keep reserves with a view to securing monetary stability in India and generally to operate the currency and credit system inthe best interests of the country. The Central Office ofthe Reserve Bank was initially established in Kolkata, Bengal, but was permanently moved to Mumbai in 1937.The Reserve Bank continued to act as the central bank for Myanmartll Japanese occupation of Burma and later up to April 1947, though Burma seceded from the Indian Union in 1937, Afr partton, the Reserve Bank served as the central bank for Pakistan until June 1948when the State Bank of Pakistan commenced operations, Though originally set up as a shareholders: bank, the RBI has been fully owned by the govemment of India since its nationalization in 1949.Betwoen 1950 and 1960, the Indian goverment developed centrally planned economic policy and focused on the agricultural sector. The administration nationalized commercial bank sand established, based on the Banking Companies Act, 1949 (ater called BankingR egulationA ct) a central bank regulation as part of the RBL Furthermere, the central bank was ordered to support the economic plan with loans, Between 1969 and 1980 the Indian govemment nationalized 20banks. The regulation of the economy and especially the financial sector \was reinforced by the Gandhi administration and their successors in the 1970s and 1980s, The central bank became the certral player and increased its policies fir alot of tasks ke interests reserve ratio and visible deposits. ‘The measures aimed at bettere conomic development and had a huge effect on the company policy of the institutes. The banks ent money in sdected sectors, like agri-business and small trade companies‘The branch was forced to establish two new offices in the country forevery newly established office in a town, The oil crises in 1973resulted in increasing inflation, and the RBI restricted monetary policy to reduce the effects. A lot of committees analyzed the Indian economy between 1985 and1991. Their results had an effet on the RBI The Board for Industrial and Financial Reconstruction, the Indira Gandhi Institute of Development Research and the Sccurity& 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 national economy came down in July 1991 and the Indian rupee was devalued. The curency lost 18% relative to the US dollar, and the Narsimha Committee advised 3restructuring the financial sector by a temporal reduced reserve ratio as well asthe statutory liquidity ratio, New guidelines were published in 1993 to establish a private banking sector. This tuming point should reinforoe the market and was offen called neo-liberal The central bank deregulated bank interests and some sectors of the financial market lke the trust and property markets. This first phase was a success and the central govemment forced a diversity liberalization to diversify owner structures in 1998:The National Stock Exchange of India took the trade on in June 1994and the RBI allowed nationalized banks in July to interact with the capital market to reinforce their capital base: ‘The central bank founded a subsidiary company the Bharatiya Reserve Bank Note Mudran Limited. in February 1995 to produce banknotes The Foreign Exchange Management Act from 1999 came into force in June2000, It should improve the foreign exchange market, intemational linvest ments in India and transactions. The RBI promoted the development ofthe financial market in the last years, allowed online banking in 2001 and established a new payment system in 2004 - 2005(National Electronic Fund Transfer). The Security Printing &Minting Corporation of India Ltd., a merger of nine institutions, was founded in 2006 and produces banknotes and coins.The national economy's growth rate came down to 5.8% in the last quarter of 2008 - 2009 and the central bank promotes the economic development. In year 2010 reserve bank of India announced the news symbol of rupee and officially declared it.Nationalization of Reserve Bank of India Initially, the RBI was established as shareholder's bank. Its share capital was Rs. 5 crores, divided into 5 lakh fully paid up share of Rs100 each. Our of this, are of the nominal value of Rs. 2,20,000 (2200 shares) were allotted to the Central Government for disposal at par to the Directors of the Central Board of the Bank seeking to obtain the minimum share qualification. The remaining share capital was owned by the private individuals. Thus, the control on the policy of the RBI remained with the Government.The RBI is governed by the Central Board of Directors. The Governor and two deputy-Governor are appointed by the Government and other members of the Governing Board are appointed by individual shareholders.In order to regulate and control monetary and credit policy of the country,the Government is empowered to supersede the central Board of Directors of the RBI if the Board fails to discharge its obligations cast upon it by the RBI Act. The demand for nationalization of RBI was started with the setting up of RBI. It was felt that RBI should be nationalized in tune with the changing national and international political and economical scenario. The objective of its nationalization was stated, “To implement the Government's policy that the Bank should function as state-owned institution and to meet the general desire that control of the government over the bank’s activities should be extended to ensure greater co-ordination in the monetary economic and financial policies.” In February, 1947, it was decided to nationalize RBI. Thus, the RBI was nationalized with the passing of the Reserve Bank of India (transfer to public ownership) Act in 1948. In terms of the Act, the entire share was transferred to the central Government on payment of compensation to. the shareholders @ Rs. 118 and 62 paisa per share of Rs.100. Thus since January 1, 1949, the the reserve bank of India is functioning as a state owned and state controlled (nationalized) bank. The nationalization of the RBI was also justified by passing of the Banking Regulation AObjectives of RBI The Preamble to the Reserve Bank of India Act, 1934 spells out the objectives of the Reserve Bank as: “to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.” Prior to the establishment of the Reserve Bank, the Indian financial system was totally inadequate on account of the inherent weakness of the dual control of currency by the Central Government and of credit by the Imperial Bank of India. The Hilton-Young Commission, therefore, recommended that the dichotomy of functions and division of responsibility for control of currency and credit and the divergent policies in this respect must be ended by setting-up of a central bank called the Reserve Bank of India — which would regulate the financial policy and develop banking facilities throughout the country. Hence, the Bank was established with this primary object in view. To regulate the financial policy and develop banking facilities throughout the country. To know the share of RBI in India’s Economie Development © To study in depth about various structure of RBI © Suggesting corrective measures to negative elements of RBI * Overview of the recent steps taken by RBI in the field of developme To manage the monetary and credit stem of the country. © To stabilizes internal and external value of rupee. © For balanced and systematic development of banking in the country. © For the development of organized money market in the country © Forproper arrangement of agriculture finance For proper arrangement of industrial finance. For proper management of public debts. To establish monetary relations with other countries of the world and international financialTo remain free from political influence and be in successful operation for maintaining financial stability and credit. To discharge purely central banking functions in the Indian money market, such as acting as the note-issuing authority, bankers’ bank and banker to Government, and to promote the growth of the economy.Organization of the Reserve Bank of India Central Board of Directors Governor Deputy Governors Executive Directors Principal Chief General Manager Chief General Managers Deputy Governors Assistant General Managers Managers Assistant Managers Support Staff ‘Central Board of Directors The Central Board of Directors is at the top of the Reserve Bank’s organisational structure. Appointed by the Government under the provisions of the Reserve Bank of India Act, 1934, the Central Board has the primary authority and responsibility for the oversight of the Reserve Bank. It delegates specific functions to the Local Boards and various committees.The Governor is the Reserve Bank’s chief executive. The Governor supervises and directs the affairs and business of the RBI. The management team also includes Deputy Governors and Executive Directors. The Central Government nominates fourteen Directors on the Central Board , ‘ctor each from the four Local Boardgpelbeeether ten Dipset including oneOrganization of the Reserve Bank of India im Central Board of Directors Deputy Governors | Executive Directors Principal Chief General Manager Chief General Managers Deputy Governors ) Assistant General Managers Managers Assistant Managers Support Staff Central Board of Directors The Central Board of Directors is at the top of the Reserve Bank's organisational structure. Appointed by the Government under the provisions of the Reserve Bank of India Act, 1934, the Central Board has the primary authority and responsibility for the oversight of the Reserve Bank. It delegates specific functions to the Local Boards and various committees.The Governor is the Reserve Bank's chief executive. The Governor supervises and directs the affairs and business of the RBI. The management team also includes Deputy Governors and Executive Directors. The Central Government nominates fourteen Directors on the Central Board , including one Director each from the four Local Boards. The other ten Directors represent different sectors of the economy, such as, agriculture ,industry, trade, and professions. All these appointments are made for a period of four years. TheGovernment also nominates one Government official as a Director representing the Government, who is usually the Finance Secretary to the Government of India and remains on the Board ‘during the pleasure of the Central Government’. The Reserve Bank Governor and a maximum of four Deputy Governors so ex officio Directors on the Central Board. ‘> Local boards The Reserve Bank also has four Local Boards, constituted by the Central Government under the RBI Act, one each for the Western, Eastern, Norther and Southemn areas of the country, which are located in Mumbai, Kolkata, New Delhi and Chennai. Each of these Boards has five members appointed by the Central Government for a term of four years. These Boards represent territoria land economic interests of their respective areas, and advise the Central Board on matters, such as; issues relating to local cooperative and indigenous banks.They also perform other functions that the Central Board may delegate to them. + Offices and Branches The Reserve Bank has a network of offices and branches through which it discharges its responsibilities. The units operating in the four metros —Mumbai, Kolkata, Delhi and Chennai — are known as offices, while the units located at other cities and towns are called branches. Currently, the Reserve Bank has its offices, including branches, at 27 locations in India. The offices and larger branches are headed by a senior officer in the rank of Chief General Manager, designated as Regional Director while smaller branches are headed by a senior officer in the rank of General Manager. + Central Office Departments Over the last 75 years, as the functions of the Reserve Bank kept evolving, the work areas were allocated among various departments. At times, the changing role of the Reserve Bank necessitated closing down of some department and creation of new departments. Currently, the Bank’s Central Office, located at Mumbai, has twenty- seven departments. Below departments frame policies in their respective work areas. They are headed by senior officers in the rank of Chief General Manager.* Central Office Departments Markets . . Department of External Investments and Operations Financial Markets Department Financial Stability Unit Internal Debt Management Department Monetary Policy Department Regulation and Supervision . Department of Banking Operations and Development Department of Banking Supervision Department of Non-Banking Supervision Foreign Exchange Department Rural Planning and Credit Department Urban Banks Department Research Department of Economic Analysis and Policy Department of Statistics and Information Management Services . . Customer Service Department Department of Currency Management Department of Government and Bank Accounts Department of Payment and Settlement Systems Support . . Department of Administration and Personnel Management Department of Communication Department of Expenditure and Budgetary Control Department of Information Technology Human Resources Development Department Inspection Department Legal DepartmentThe Central Board has primary authority for the oversight of RBI. It delegates specific functions through it’s committees, boards and sub-committees. +» Board for Financial Supervision (BFS) In terms of the regulations formulated by the Central Board under Section S8of the RBI Act, the Board for Financial Supe! 1994, as a committee of the Central Board, to undertake integrated supervision of ion (BFS) was constituted in November different sectors of the financial system. Entities in this sector include banks, financial institutions and non-banking financial companies (including Primary Dealers). The Reserve Bank Governor is the Chairman of the BFS and the Deputy Governors are the ex officio members. One Deputy Governor, usually the Deputy Governor in-charge of banking regulation and supervision, is nominated as the Vice-Chairperson and four directors from the Reserve Bank’s Central Board are nominated as members of the Board by the Governor.The Board is required to meet normally once a month. It deliberates onvarious regulatory and supervisory policy issues, including the findings of on-site supervision and off-site surveillance carried out by the supervisory departments of the Reserve Bank and gives directions for policy formulation. The Board thus plays a critical role in the effective discharge of the Reserve Bank's regulatory and supervisory responsibilities. “ Audit Sub-Committee The BFS has constituted an Audit Sub-Committee under the BFS Regulations to assist the Board in improving the quality of the statutory audit and internal audit in banks and financial institutions. The Deputy Governor in charge of regulation and supervision heads the sub-committee and two Directors of the Central Board are its members.+ Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) The Board for Regulation and Supervision of Payment and Settlement Systems provides an oversight and direction for policy initiatives on payment and settlement systems within the country. The Reserve Bank Governor is the Chairman of the BPSS, while two Deputy Governors, three Directors of the Central Board and some permanent invitees with domain expertise are its members. + Staff Strength As of June 30, 2009, the Reserve Bank had a total staff strength of 20,572.Nearly 46% of the employees were in the officer grade, 19% in the clerical cadre and the remaining 35% were sub staff. While 17,351 staff members were attached to Regional Offices, 3,221 were attached to various Central Office departments. + Training and Development The Reserve Bank attaches utmost importance to the development of human capital and skill upgradation in the Indian financial sector. For this purpose, it has, since long, put in place several institutional measures for ongoing training and development of the staff of the banking industry as well as its own staff. “ Training Establishments The Reserve Bank currently has two training colleges and four zonal training centres and is also setting up an advanced learning centre.The Reserve Bank Staff College (originally known as Staff Training College), setup in Chennai in 1963, offers residential training programmes, primarily to its junior and middle-level officers as well as to officers of other central banks, in various areas. The programmes offered can be placed in four broad categories: Broad Spectrum, Functional, Information Technology and Human Resources Management. The College of Agricultural Banking set up in Pune in 1969, focuses on training the senior and middle level officers of rural and co-operative credit sectors. In recent years, it has diversified and expanded the training coverage into areas relating to non-banking financial companies, human resource management and information technology.Both these colleges together conduct nearly 300 training programmes every year, imparting training to over 7,500 2Financial Learning (CAFL) replacing the Bankers’ Training College, Mumbai. In addition, the Reserve Bank also has four Zonal Training Centres (ZTCs), in Chennai, Kolkata, Mumbai (Belapur) and New Delhi, primarily for training its clerical and sub-staff. However, of late, the facilities at the ZTCs are also being leveraged for t ing the junior officers of the Reserve Bank. *% Academic Institutions The Reserve Bank has also set up autonomous institutions, such as, National Institute of Bank Management (NIBM), Pune; Indira Gandhi Institute for Development Research (IGIDR), Mumbai; and the Institute for Development and Research in Banking Technology (IDRBT), Hyderabad. National Institute of Bank Management (NIBM) was established as an autonomous apex institution with a mandate of playing a pro-active role of a ‘think-tank’ of the banking system. The Institute is engaged in research (policy and operations), education and training of senior bankers and development finance administrators, and consultancy to the banking and financial sectors. Publication of books and journals is also integral to its objectives. International Monetary Fund (IMF), in collaboration with Australian Government Overseas Aid Programme (AUS-AID) and the Reserve Bank, has set-up its seventh international centre, the Joint India-IMF Training Programme (ITP) in NIBM for South Asia and Eastern Africa regions. The Indira Gandhi Institute of Development Research (IGIDR) is an advanced research institute for carrying out research on development issues. Starting as a purely research institution, it quickly grew into a full-fledged teaching cum research organisation when in 1990 it launched a Ph.D. programme in the field of development studies. The objective of the Ph.D. programme is to produce analysts with diverse disciplinary background who can address issues of economics, energy and environment policies. In 1995 an M. Phil programme was also started. The institute is fully funded by the Reserve Bank. IDRBT was established in 1996 as an Autonomous Centre for Development and Research in Banking Technology.While addressing the immediate concerns of the 13banking sector, research at the Institute is focused towards anticipating the future needs and requirements of the sector and developing technologies to address them. The current focal areas of research in the Institute are: Financial Networks and Applications, Electronic Payments and Settlement Systems, Security Technologies for the Financial Sector, Technology Based Education, Training and Development, Financial Information Systems and Business Intelligence. The Institute is also actively involved in the development of various standards and systems for banking technology, in coordination with the Reserve Bank of India, Indian Banks’ Association, Ministry of Communication and Information Technology, Government of India, and the various high-level committees constituted at the industry and national levels.Functions of RBI Functions Of RBI Traditional Supervisory Promotional Function Function Function 1. Traditional Functions 2.Supervisory Function 3.Promotional Functions 1. Banking /Tradional/Monetary/Funetion 1. Note Issue: The Reserve Bank has the monopoly of note issue in the country. It has the sole right to issue currency notes of all denominations except one-rupee notes. One-rupee notes are issued by the Ministry of Finance of the Government of India. The Reserve Bank acts as the only source of legal tender because even the one-rupee notes are circulated through it. The Reserve Bank has a separate Issue Department, which is entrusted with the job of issuing currency notes. The Reserve Bank has adopted minimum reserve system of note issue. Since 1957, it maintains gold and foreign exchange reserves ofRs, 200 crore, of which at least Rs. 115 crore should be in gold. 2. Banker to Government: The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of all State Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, via to keep the cash balances as deposits free of interest, to receive and to make payments on behalf of the Government and to carry out their exchange remittances and other banking operations. The Reserve Bank of India helps the Government—both the Union and the States to float new loans and to manage public debt. The Bank makes ways and means advances to the Governments for 90 days. It makes loans and advances to the States and local authorities. It acts as adviser to the Government on all monetary and banking matters. 3. Bankers’ Bank and Lender of the Last Resort: The Reserve Bank of India acts as the banker's bank. According to the provisions of the Banking Companies Act of 1949, every scheduled bank was required to maintain with the Reserve Bank a cash balance equivalent to 5% of its demand liabilities and 2 percent of its time liabilities in India. By an amendment of 1962, the distinction between demand and time liabilities was abolished and banks have been asked to keep cash reserves equal to 3 percent of their aggregate deposit liabilities. The minimum cash requirements can be changed by the Reserve Bank of India. The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible securities or get financial accommodation in times of need or stringency by rediscounting bills of exchange. Since commercial banks can always expect the Reserve Bank of India to come to their help in times of banking crisis the Reserve Bank becomes not only the banker’s bank but also the lender of the last4. Controller of Credit: In modern times, bank credit has become the most important source of money in the country, relegating coins and currency notes to a minor position. As Controller of credit, central bank attemps to influence and control the volume of bank credit and also to stabilize business condition in the country, Price Stability is essential for money supply in accordance with the changing requirements of the economy. The Reserve Bank makes extensive use of various quantitative and qualitative techniques to effectively control and regulate credit in the country. — OBJECTIVE OF CREDIT CONTROL The central bank makes efforts to control the expansion or contraction of credit in order to keep it at the required level with a view to achieving the following ends. 1 To save Gold Reserves: The central bank adopts various measures of credit control to safe guard the gold reserves against intemal and external drains.2 To ach stability in the Price level: Frequently changes in prices adversely affect the economy. Inflationary and deflationary trends need to be prevented. This can be achieved by adopting a judicious of credit control.3. To achieve stability in the Foreign Exchange Rate: Another objective of eredit control is to achieve the stability of foreign exchange rate. If the foreign exchange rate is stabilized, it indicates the stable economic conditions of the country.4. To meet Business Needs: According to Burgess, one of the important objectives of credit control is the “Adjustment of the 7volume of credit to the volume of Business"credit is needed to meet the requirements of trade an industry. So by controlling credit central bank can meet the requirements of business. Methods of Credit Control There are two method of Credit Control: © Quantitative method 1. Bank Rate Policy 2. Open market operations 3. Change in Reserve Ratios 4. Credit Rationing © Qualitative Method 1. Direct Method 2. Moral persuasion 3. Legislation 4. Publicity 5 + Quantitative method 1. Bank Rate Policy: Bank rate is the rate of interest which is charged by the central bank on rediscounting the first class bills of exchange and advancing loans against approved securities. This facility is provided to other banks. It is also known as Discount Rate Policy. 2. Open Markets Operations: ‘The term “Open Market Operations” in the wider sense means purchase or sale by a central bank of any kind of paper in which it deals, like government securiteties or any other public securities or trade bills ect. In pretices, however the term is applied to purchase or sale of government securities, short-term as well as long-term, at the initiative of the central bank, as a deliberate credit policy. 3. Change in Reserve Ratios: Every commercial bank is required to deposit with the central bank a certain part of its total deposits. When the central bank wants to expand credit it decreases the 18reserve ratio as required for the commercial banks. And when the central bank wants to contract credit the reserve ratio requirement is increased, 4. Credit Rationing: Credit rationing means restrictions placed by the central bank on demands for accommodation made upon it during times of monetary stringency and declining gold reserves. This method of controlling credit can be justified only as a measure to meet exceptional emergencies because it is open to serious abuse 5. CRR (Cash Reserve Ratio): Cash reserve Ratio (CRR) is the amount of Cash (liquid cash like gold) that the banks have to keep with RBI. This Ratio is basically to secure solvency of the bank and to drain out the excessive money from the banks. If RBI decides to increase the percent of this, the available amount with the banks comes down and if RBI reduce the CRR then available amount with Banks increased and they are able to lend more.RBI has reduced this ratio three times and reduced it from 9 % to 5.5% in last one month or 80.6. Repo Rate: Repo rate is the rate at which our banks borrow rupees from RBI. This facility is for short term measure and to fill gaps between demand and supply of money in a bank when a bank is short of funds they they borrow from bank at repo rate and if bank has a surplus fund then the deposit the funds with RBI and earn at Reverse repo rate So reverse Repo rate is the rate which is paid by RBI to banks on Deposit of funds with RBI.A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI becomes more expensive.To borrow from RBI bank have to submit liquid bonds /Govt Bonds as collateral security so this facility is a short term gap filling facility and bank does not use this facility to Lend more to their customers present rate is 7.5% and reverse repo rate is 6%, ‘SLR(Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the 19 Oo cle,expansion of bank credit.Generally this mandatory ration is complied by investing in Govt bonds.present rate of SLR is 24 %.But Banks average is27.5 % ,the reason behind it is that in deficit budgeting Govt landing is more so they borrow money from banks by selling their bonds tobanks.so banks have invested more than required percentage and use these excess bonds as collateral security ( over and above SLR to avail short term Funds from the RBI at Repo rate. > Qualitative Method 1. Direct Action: The central bank may take direct action against commercial bank that violates the rules, orders or advice of the central bank, This punishment is very severe of a commercial bank, 2. Moral persuasion: It is another method by which central bank may get credit supply expanded or contracted. By moral pressure it may prohibit or dissuade commercial banks to deal in speculative business. 3. Legislation: The central bank also adopts necessary Legislation for expanding or contracting credit money in the market. 4. Publicity: The central bank may resort to massive advertising campaign in the news papers, magazines and journals depicting the poor economic conditiond of the country suggesting commercial banks and other financial institutions to control credit either by expansion or contraction. 5. Custodian of Foreign Reserve: The Reserve Bank of India has the responsibility to maintain the official rate of exchange. According to the Reserve Bank of India Act of 1934, the Bank was required to buy and sell at fixed rates any quantity of sterling in lots of not less than Rs. 10,000, 20The rate of exchange fixed was re. | = sh. 6d. Since 1935 the Bank was able to maintain the exchange rate fixed at Ish. 6d though there were periods for extreme pressure in favour of or against the rupee. 6. National clearing house: The Reserve Bank Acts as the national clearing house and helps the member banks to settle their mutual indebtedness without physically transferring cash from place to place. 7. Collection of Data and Publications: The RBI collects statistical data economic information through its research departments. It complies data on the working of commercial and co-operative banks, on balance of payments, company and government finances, security markets, price trends, and credit measures, After India becomes a member of the International Monetary Fund in 1945, the Reserve Bank has the responsibility of maintaining fixed exchange rates with all other member countries of the International Monetary Fund (I.M.F.) Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India’s reserve of international currencies. The vast sterling balances were acquired and managed by the Bank. Further, the RBI has the responsibility of administering the exchange controls of the country. II. Supervisory Functions: In addition to its traditional central banking functions, the Reserve Bank has certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India, The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, ‘management and methods of working, amalgamation, reconstruction and liquidation. The RBI is authorised to carry out periodical inspection of the banks and to call for retums and necessary information from them. The nationalisation of 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for 21directing the growth of banking and credit policies towards more rapid development of the economy and realisation of certain desired social objectives. The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation. RBI has authority to regulate and administer the entire banking and financial system. Some of its supervisory functions are given below. 1. Granting license to banks: The RBI grants license to banks for carrying its business. License is also given for opening extension counters, new branches, even to close down existing branches. 2. Bank Inspection: The RBI grants license to banks working as per the directives and in a prudent manner without undue risk. In addition to this it can ask for periodical information from banks on various components of assets and liabilities. 3. Control over NBFIs: The Non-Bank Financial Institutions are not influenced by the working of a monitory policy. However RBI has a right to issue directives to the NBFls from time to time regarding their functioning. Through periodic inspection, it can control the NBFIs. 4. Implementation of the Deposit Insurance Scheme: The RBI has set up the Deposit Insurance Guarantee Corporation in order to protect the deposits of small depositors. All bank deposits below Rs. One lakh are insured with this corporation. The RBI work to implement the Deposit Insurance Scheme in case of a bank failure. 5. Control over Management: The appointments, reappointment or termination of appointment of chairman and chief executive officer of a private sector bank is to be approved by the RBI. The bank's approval is also required for the remuneration, perquisite and post retirement benefits given by a bank to its chairman and chief executive officers.6. Control over Methods: The RBI exercises strict control over the methods of operations of the banks to ensure that no improver investment and injudicious advances made by them. 7. Audit: Banks are required to get their balance sheets and profit and loss accounts duly audited by the auditors approved by RBI. In the case of SBI, the auditors are appointed by the RBI 8. Others: The bank has to obtain the section of the RBI for any voluntary amalgamations or reconstructions. It also suervises bank in liquidation. The RBI has played an active role in providing training and banking education to the bank personnel, with a view to improve their efficiency. ILL. Promotional Functions of RBI: Various promotional functions performed by the Reserve Bank of India are given below. 1, Promotion of Banking Habit: The Reserve Bank of India helps in mobilizing the savings of the people for investment. It expanded banking system throughout the nation by setting up of various institutions like UTI, IDBI, IRC, NABARD ete. Thereby it promoted banking habit among the people. 2. Providing Refinance for Exports: The Reserve Bank of India is providing refinance for export promotion. The Export Credit and Guarantee Corporation (ECGC) and Export Import Bank were established initially by the Reserve Bank of India to finance the foreign trade of India. They finance foreign trade in the form of insurance cover, long-term finance and foreign currency credit. However, they are now functioning separately. 3. Providing Credit to Agriculture: The Reserve Bank of India makes institutional arrangements for rural or agricultural finance. For example, the bank has set up 5x of commercial banks. It has also promoted NABARD. 1 agricultural credit cells. It has promoted regional rural banks with the help4. Providing Credit to Small Seale Industrial Unit: Commercial banks lend loans to small-scale industrial units as per the directives issued by the Reserve Bank of India time to time, The Reserve Bank of India encourages commercial banks to render guarantee services also to small-scale industrial sector. The Reserve Bank of India considers advances given to small-scale sector as priority sector advances. It also directed commercial banks to open specialized branches to provide adequate financial and technical assistance to small-scale industrial branches. 5. Providing Indirect finance to Cooperative Sector: The RBI has directed NABARD to give loans to State Cooperative Banks, which in turn lend loans to cooperative sector. Hence, the Reserve Bank of India provides indirect finance to cooperative sector in India. 6. Exercising Control over Monetary and Banking system of the Country: The Reserve Bank of India is vested with enormous and extensive powers regarding supervision and control over commercial banks, cooperative banks and also non- banking institutions receiving deposits. The Banking Regulation Act prescribes extensive requirements as minimum regarding the paid-up capital, reserves, cash reserves and liquid assets. The operation of the bank, the management, amalgamation, reconstruction and liquidation etc. are thoroughly supervised by the officials of the Reserve Bank of India. Every scheduled bank is required to furnish to the Reserve Bank a weekly statement showing the principal items of its liabilities and assets in India Making Industrial arrangement for Industrial Finance: The Reserve Bank of India makes institutional arrangement for industrial finance. For instance, it has brought into existence several development banks such as the Industrial Finance Corporation of India, the Industrial Development Bank of India, which provide long- term finance to industriesDevelopment Role of RBI in Indian economy The Reserve Bank is one of the few central banks that has taken an active and direct role in supporting developmental activities in their country. The Reserve Bank’s developmental role includes ensuring credit to productive sectors of the economy, creating nstitutions to build financial infrastructure, and expanding access to affordable financial services. Over the years, its developmental role has extended to institution building for facilitating the availability of diversified financial services within the country, The Reserve Bank today also plays an active role in encouraging efficient customer service throughout the banking industry, as well as extension of banking service to all, through the thrust on financial inclusion. Towards this goal, which has evolved over many years, the Reserve Bank has taken various initiatives, 1.Rural Credit Given the predominantly agrarian character of the Indian economy, the Reserve Bank’s role has been to ensure ti ely and adequate credit to the agricultural sector at affordable cost. Section 54 of the RBI Act, 1934 states that the Bank may maintain expert staff to study various aspects of rural credit and development and in particular, it may tender expert guidance and assistance to the National Bank (NABARD) and conduct special studies in such areas as it may consider necessary to do so for promoting integrated rural development. > Priority Sector Lending The focus on priority sectors can be traced to the Reserve Bank's credit policy for the year 1967-68, and institution of a scheme of ‘social control’ over commercial banks in 251967 by the Government of India to remove certain deficiencies observed in the functioning of the banking system, such as, bulk of bank advances directed to large and medium-scale industries and established business houses. In order to provide access to credit to the neglected sectors, a target based priority sector lending was introduced from the year 1974, initially with public sector banks. The scheme was gradually extended to all commercial banks by 1992. The scope and extent of priority sectors have undergone several changes since the formalisation of description of the priority sectors in 1972. The guideline son lending to priority sector were revised with effect from April 30, 2007. The guiding principle of the revised guidelines on lending to priority sector has been to ensure adequate flow of bank credit to those sectors of the society/ economy that impact large segments of the population and weaker sections, and to the sectors which are employment-intensive, such as, agriculture and small enterprises. The broad categories of advances under priority sector now include agriculture, micro and small enterprises sector, microcredit, education and housing. The domestic scheduled commercial banks, both in the public and private sector, having shortfall in lending to priority sector and/or agricultural lending and/or weaker section lending targets, are required to deposit in Rural Infrastructure Development Fund (RIDF) established with NABARD or other Funds set up with other financial institutions. RIDF was established with NABARD in April 1995 to assist State Governments / State-owned corporations in quick completion of projects relating to irrigation, soil conservation, watershed management and other forms of rural infrastructure (such as, rural roads and bridges, market yards, etc.). Since then, the RIDF has been extended on a year-to-year basis to presently RIDF XV through announcements in the Union Budgets. The interest rates charged from State Governments and payable to banks under the Rural Infrastructure Development Fund (RIDF) have been brought down over the years in accordance with the reduction of market interest rates. As a measure of disincentive for non-achievement of agricultural lending target, effective RIDF-VIL, the rate of interest on RIDF deposits has been linked to the banks’ performance in lending to agriculture. Accordingly. while the State Governments are required to pay interest at Bank Rate plus 0.5 percentage points, the rates of interest on deposits vary between Bank Rate and Bank Rate minus 3 percentage points depending on the individual bank's shortfall in lending to agriculture target of 18 per cent.> Lead Bank Scheme The Reserve Bank introduced the Lead Bank Scheme in 1969. Here designated banks were made key instruments for local development and were entrusted with the responsibility of identifying growth centres, assessing deposit potential and credit gaps and evolving a coordinated approach for credit deployment in each district, in concert with other banks and other agencies. The Reserve Bank has assigned a Lead District Manager for each district who acts as a catalytic force for promoting financial inclusion and smooth working between government and banks. > Special Agricultural Credit Plan With a view to augmenting the flow of credit to agriculture, Special Agricultural Credit Plan (SACP) was instituted and has been in operation for quite some time now, Under the SACP, banks are required to fix self-set targets showing an increase of about 30 per cent over previous year’s disbursements on yearly basis (April ~ March). The public sector banks have been formulating SACP since 1994. The scheme has been extended to Private Sector banks as well from the year 2005-06. > Kisan Credit Cards: The Kisan Credit Card (KCC) Scheme was introduced in the year 1998-99 to enable the farmers to purchase agricultural inputs and draw cash for their production needs. On revision of the KCC Scheme by NABARD in 2004, the scheme now covers term credit as well as working capital for agriculture and allied activities and a reasonable component for consumption needs. Under the scheme, the limits are fixed on the basis 27of operational land holding, cropping pattern and scales of finance. Seasonal sub- limits may be fixed at the discretion of the banks. Limits may be fixed taking into account the entire production credit needs along with ancillary activities relating to crop production, allied activities and also non-farm short term credit needs (consumption needs). Limits are valid for three years subject to annual review. Security, margin and rate of interest are as per RI sued from time to time. > Natural Calamities — Relief Measures In order to provide relief to bank borrowers in times of natural calamities, the Reserve Bank has issued standing guidelines to banks. The relief measures include, among other things, rescheduling / conversion of short-term loans into term loans; fresh loans; relaxed security and margin norms; treatment of converted/rescheduled agriculture loans as ‘current dues’; non-compounding of interest in respect of loans converted / rescheduled; and moratorium of at least one year. 2. Micro, Small and Medium Enterprises Development With the enactment of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the services sector has also been included in the definition of micro, small and medium enterprises, apart from extending the scope to medium nition of micro, small and medium enterprises. The Act sought to modify the de! enterprises engaged in manufacturing or production and providing or rendering of 28services. Some of the major measures by RBI/ GOI to improve the credit flow to the MSE sector are as under: » Collateral Free Loans: Reserve Bank has issued instructions! guidelines advising banks to sanction collateral free loans up to Rs.5 lakh to the MSE borrowers. Further, banks have also been advised to lend collateral free loans up to Rs.25 lakh, based on good track record and financial position of the units. > Credit Guarantee Scheme for Small Industries by SIDBI: The main objective of the Credit Guarantee Scheme (CGS) for MSEs is to make available bank credit to first generation entrepreneurs for setting up their MSE units without the hassles of collateral/third party guarantee. The Scheme envisages that the lender availing guarantee facility would give composite credit so that the borrowers ‘obtain both term loan and working capital facilities from a single agency. The Trust at present is providing guarantee to collateral free loans up to Rs. 1 crore under the scheme. > Specialised MSE Branch in every District: Public sector banks were advised in August 2003 to operationalise at least one specialized MSE branch in every district and centre having a cluster of MSE enterprises. At the end of March 2009, 869 specialised MSE bank branches were operationalised by banks. » Formulation of “Banking Code for MSE Customers”: The Banking Codes and Standards Board of India (BCSBI) has formulated a voluntary Code of Bank’s Commitment to Micro and Small Enterprises and has set minimum standards of banking practices for banks to follow when they are dealing with MSEs. Working Group on Rehabilitation/Nursing of Potentially Viable Sick SME Units: Detailed guidelines have been issued to banks advising them to evolve Board approved policies for the MSE sector relating (i) Loan policy governing extension of credit facilities. 29(ii) Restructuring / Rehabilitation policy for revival of potentially viable sick units / enterprises, (ili) Non-discretionary one time settlement scheme for recovery of non-performing loans. 3.Export Credit within the overall monetary and credit policy framework. In order to provide adequate credit to exporters on a priority basis, the Reserve Bank has also prescribed a minimum proportion of banks” adjusted net bank credit to be lent to exporters by foreign banks. Post liberalisation and deregulation of the financial sector within the country, it was observed that banking industry has shown tremendous growth in volume and range of services provided while making significant improvements in financial viability, profitability and competitiveness. However, banks had not been reaching and bringing vast segments of the population, especially the underprivileged sections of society, into the fold of basic banking services to the desired extent. This prompted the need for the RBI to develop a specific focus towards Financial Inclusion for inclusive growth. The Reserve Bank established Working Groups in Bihar, Uttaranchal, Chhattisgarh, Lakshadweep, Himachal Pradesh and Jharkhand between July 2006 and October 2007 with a view to improving the outreach of banks and their services, promoting financial inclusion and supporting the development plans of the State Governments. The reports examined the adequacy of banking services, made constructive suggestions towards enhancing the outreach of banks and promoting financial inclusion as well as revitalising RRBs and UCBs in the respective regions. To improve banking penetration in the North-East, the Reserve Bank of India established a Committee on Financial Sector Plan (CFSP) for North Eastern Region in January 2006. The report includes, among other things, suggestions for expanding the banking outreach, simplification of system and procedures for opening bank accounts, land collateral substitutes, currency management, funds transfer and payment facilities and revised human resources incentives in the region. The Report addressed important issues pertaining to financial inclusion, improving CD ratio, providing hassle-free credit. The Reserve Bank has also formulated a scheme for setting-up banking facilities (currency chests, extension of foreign exchange and Government business facilities) at centres in the North-Eastern region, which are not found to be 30commercially viable by banks, The State Governments would make available necessary premises and other infrastructural support. The Reserve Bank, as its contribution, would bear the one time capital cost and recurring costs for a limited period of five years. 4.Financial Inclusion The Reserve Bank’s approach to customer service focuses on protection of customers’ rights, enhancing the quality of customer service, and strengthening the grievance redressal mechanism in banks and also in the Reserve Bank. The Reserve Bank’s initiatives in the field of customer service include the setting up of a Customer Redressal Cell, creation of a Customer Service Department and the setting up of the Banking Codes and Standards Board of India (BCSBI), an autonomous body for promoting adherence to self-imposed codes by banks. In order to strengthen the institutional mechanism for dispute resolution, the Reserve Bank in 1995 introduced the Banking Ombudsman (BO) scheme. The BO is a quasi-judicial authority for resolving disputes between a bank and its customers. At present, there are 15 Banking Ombudsman offices in the country. The scheme covers grievances of the customers against commercial banks, urban cooperative banks and regional rural banks. In 2006, the RBI introduced a revised BO scheme. Under the revised scheme, the BO and the attached staff are drawn from the serving employees of the Reserve Bank.The new scheme is fully funded by the RBI and covers grievances related to credit cards and activities of the selling agents of banks also. Under the BO scheme, both the complainant and the bank, if unsatisfied with the decision of the BO, can appeal against the decisions of the BO to the appellate authority within the Reserve Bank. 35.Customer Service The Reserve Bank’s approach to customer service focuses on protection of customers’ right enhancing the quality of customer service, and strengthening the grievance redressal mechanism in banks and also in the Reserve Bank.The Reserve Bank's initiatives in the field of customer service include the setting up of a Customer Redressal Cell, creation of a Customer Service Department and the setting up of the Banking Codes and Standards Board of India (BCSBI, an autonomous body for promoting adherence to imposed codes by banks. In order to strengthen the institutional mechanism for dispute resolution, the Reserve Bank in 19% introduced the Banking Ombudsman (BO) scheme. The BO is a quasi-judicial authority for resolving disputes between a bank and its customers. At present, there are 15 Banking Ombudsman offices in the country. The scheme covers grievances of the customers against commercial bank: Ef ficien C urban cooperative banks and Le regional rural banks. In 2006, ee the RBI introduced a revised BO scheme. Under the revised a scheme, the BO and the attached staff are drawn from the serving employees of the Reserve Bank.The new scheme is fully funded by the RBI and covers grievances related to credit c cds and activities of the selling agents of banks also, Under the BO scheme, both the complainant and the bank, if unsatisfied with the decision of the BO, can appeal against the decisions of the BO to the appellate authority within the Reserve Bank. A special taskforee was established for Sikkim, which looked at various key indicators, uch as, financial inclusion, branch expansion, business correspondent facilitator model, forex facilities, insurance and capital, currency management, funds transfer and payment, etc. The implementation of the report's recommendations is monitored through an Action Point Matrix and quarterly progress reports.Significant Contribution of Different Subsidiaries of RBI in Economic Development of 1.Deposit Insurance and Credit Guarantee Corporation (DICGC) 1. Deposit Insurance Deposit insurance is a protection provided usually by a government agency to depositors against risk of loss arising from failure of a bank. It is implemented in many countries to protect bank depositors and is one of the financial system safety net components that promote financial stability. Deposit insurance is mandatory which is paid from the premium collected from banks. Deposite insurance cover is available only upto afixed maximum amount per depositor. Apart from deposit insurance, the other safety net components that promote financial stability and protect the depositors’ interests are appropriate regulation, supervision and liquidity support from the Central Bank, lender of last resort facilities from the Central Bank and resolution of weak banks. 2.Information and background about DICGC After the crash of the Palai Central Bank Ltd. and the Laxmi Bank Ltd. in 1960, the Reserve Bank of India and the Central Government were instrumental in enacting the Deposit Insurance Corporation (DIC) Bill in 1961, The Reserve Bank of India (RBI) also promoted a public limited company in January 1971 named the Credit Guarantee Corporation of India Ltd. (CGCI) for encouraging the commercial banks to cater to the credit needs of the neglected sectors. With a view to integrating the functions of deposit insurance and credit guarantee, the above two organizations (DIC & CGC1) were merged and the present Deposit Insurance and Credit Guarantee Corporation (DICGC) came into existence in July 1978. Consequently, the title of Deposit Insurance Act, 1961 was changed to ‘The Deposit Insurance and Credit Guarantee Corporation Act, 1961”. The DICGC Act applies to the whole of India. 33Services provided by DICGC DICGC was established for providing insurance of deposits and guaranteeing of credit facilities. At present, DICGC insures each depositor of a registered insured bank upto a maximum of Rs.1Lakh for all bank deposits, such as saving, fixed, current, recurring deposit The credit guarantee scheme of DICGC is presently not operative as the banks have opted out of the scheme due to availability of alternative guarantee schemes viz Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Credit Guarantee Fund Scheme for Educational Loans (CGSEL), National Credit Guarantee Trustee Company (NCGTC), micro units development refinance agency (MUDRA), etc. The last claim settled under Credit Guarantee was for Rs.0.61 crore which was settled in 2003. DICGC is a wholly owned undertaking of the RBI. The RBI has invested Rs,50 crore share capital of DICGC. 3.Sources of funds for DICGC As DICGC is a wholly owned undertaking of the RBI, it is considered as one of the Departments of the RBI and staff from RBI is deputed to DICGC on the same pay and perquisites that the employees of RBI are entitled to. Further, DICGC is permitted to draw advances from the RBI from time to time for deposit insurance purposes or credit guarantee purposes. However, DICGC has not availed of this facility tll date. The source of funds of DICGC is its capital, premium receipts from the registered banks and income arising from the investments made by DICGC. All registered insured banks are liable to pay to the DICGC deposit insurance premium at the rate of 10 paise per annum for every deposit of Rs.100 (i.c0.10%p.a) for the half year ending March and September on the total deposits of the bank as on the preceding half year. 34As per the provisions of Section 25 of DICGC Act, 1961, the funds that DICGC does not require for the time being, for settlement of claims, are invested in Central Government securities and deposits with the RBI. DICGC has a Treasury which takes care of the investments and liquidity requirements 3. Banks covered by DICGC for deposit insurance Deposit insurance is compulsory for all banks in the country. Therefore, all public sector banks, private sector banks, local area banks, regional rural banks, small finance banks, payments banks, branches of foreign banks functioning in India, all State, Central and Primary cooperative banks (Urban Cooperative Banks) are registered and insured by the DICGC. Presently, there are around 2,100 odd banks registered with DICGC. The deposit insurance scheme is compulsory and all banks need to get registered with the DICGC and no bank can withdraw from the scheme. However, banks could be de- registered by DICGC on account of default in payment of premium for three consecutive periods. However, there is no such instance of de-registration on this account till date. The information on de-registered banks is available in the DICGC's website, wwwdiege.org.in under For depositors > List of de-registered banks. The deregistration could happen on account of cancellation of banking license or on account of the bank being migrated to a different type of bank. For Ex:- from Local Area bank to Small Finance Bank. 4.Settlement of deposit insurance As on March 31, 2016, the total amount of claims paid by DICGC since inception were at Rs.50 billion As on March 31, 2016, the insured deposits of all the banks in the country stood at Rs.28,264 billion and the amount in the deposit insurance fund (DIF) stood at Rs.603 billion yielding a Reserve Ratio (RR) (ratio of Deposit Insurance Fund to Insured Deposits) of 2.13 % which is comparable to the global scenario, The funds in DIF are 35more than 10 times of the claims paid till now by DICGC since its inception in 1961 DICGC also conducts periodic actuarial valuation of its liabilities, to ascertain if this fund is sufficient. It also has a backstop arrangement to borrow from the RBI in a cash crunch, Further, going by the claims settled in the past, the funds available with DICGC are sufficient to handle normal rate of bank failures. Deposits of different banks are insured separately. The insurance cover of Rs.1 lakh per depositor in the same right same capacity is for each bank separately. Therefore, even if two banks are closed / deregistered / cancelled on the same date, the same depositor will be eligible for a maximum insurance cover of Rs.1 lakh each in each bank. 5.Process of settlement of deposit insurance The date of deregistration of a bank as an insured bank is the cutoff date which is also the date of liquidation / cancellation of bank’s license or the date on which the scheme of amalgamation / merger / reconstruction comes into force. The claim amount (including interest) payable to each depositor, after set-off of loans and advances and clubbing of deposits, in the ‘same capacity and same right’ is arrived at, depositor- wise, as on the cutoff date. On receipt of an order for liquidation of a bank or a scheme of amalgamation/reconstruction for a bank approved by the Reserve Bank of India, the liquidator is appointed by the Registrar of Co-operative Societies of the respective State in case of Cooperative banks and Reserve Bank of India in case of commercial banks. On appointment of the liquidator, the DICGC sends detailed guidelines for compilation of the claim list and copies of the audited balance sheet, profit and loss accounts of the bank as on the date of cancellation of registration / amalgamation ‘reconstruction, ete of the bank are called for, to verify the authenticity of the total deposits as given in the claim list. The liquidator is required to furnish the main claim list in the form and manner prescribed in the guidelines within 3 months from the date of his appointment. He is required to ensure that only eligible deposits are aggregated for each depositor in the ‘same capacity and same right’ and clubbed together after setting-off dues payable to the bank by the depositor. Further, only eligible insured depositors who are complying with the Know Your Customer (KYC)norms are 36required to be included in the Main Claim list in accordance with the Guidelines issued by DICGC. For certifying the main claim list prepared by the liquidator, a Chartered Accountant (CA) is appointed by the RBI who is required to check the deposits of the balance sheet, interest calculation and claim list for clubbing, set-off, KYC, ete and furnish a certificate with Annexures on admissible and inadmissible claims. Only after receipt of the certificate from the CA, the main claim is taken up for processing by DICGC In the event of a bank’s liquidation, the liquidator prepares depositor-wise claim list and submits it to the DICGC for scrutiny and payment. The DICGC pays the money to the liquidator who is liable to pay to the depositors. In the case of amalgamation / merger of banks, the amount due to each depositor is paid to the transferee bank. Therefore, DICGC does not deal directly with the depositors. However, depositors are free to contact DICGC, in case of any grievance regarding deposit insurance of upto Rs.1 lakh. On scrutiny of the main Claim list submitted by the Liquidator and certificate furnished by the CA, admissible claim amount is arrived at by the DICGC and the admissible amount is sanctioned and disbursed to the liquidator or the liquidator is advised to settle the claim through adjustment through liquid funds available with the bank. On advice from DICGC, the liquidator pays the admissible amount to the depositors. During processing of main claims, DICGC may reject some claims due to bin adequate KYC verification by liquidator / CA, club certain claims which appear to be belonging to a same depositor, withhold some claims for want of additional information such as name of the firm, etc, Further, there are some claims that are parked as untraceable depositors which are called part B claims and certain claims refunded by the liquidator as undisbursed amounts. In respect of all the above and also in respect of additional claims which may have been missed during submission of main claim, the liquidator could submit supplementary claims with supporting documents as mentioned in the guidelines to the liquidators which are primarily KYC documents, legal heir certificate, ete 37