Regulatory framework of Financial system in India

Contents:

Financial system in india………..…………………………………………………………………………

Role of financial system……………………………………………………………………………………

Components/ constituents of Indian financial system…………………………………………….

Flow chart of Indian financial system…………………………………………………………………

Organization of Regulatory Functions: A Single Regulator? ……………….………………………

Insurance regulatory and development authority…………………………………………………………

Duties, power and functions of IRDA………………………………………………………….…

Indian insurance industry securities and exchange board of India……………………………………

Functions and responsibilities……………………………………………..…………………………

Reserve bank of India ……………………………………………………………………………

Functions of RBI…………………………………………………………………………………

TARAPORE committee................................................................................................................

Financial system in india

Introduction:

Economic growth and development of any country depends upon a well-knit financial system. Financial system comprises, a set of sub-systems of financial institutions financial markets, financial instruments and services which help in the formation of capital. Thus a financial system provides a mechanism by which savings are transformed into investments and it can be said that financial system play an significant role in economic growth of the country by mobilizing surplus funds and utilizing them effectively for productive purpose.

The financial system is characterized by the presence of integrated, organized and regulated financial markets, and institutions that meet the short term and long term financial needs of both the household and corporate sector. Both financial markets and financial institutions play an important role in the financial system by rendering various financial services to the community. They  operate in close combination with each other.

Financial System;

The word "system", in the term "financial system", implies a set of complex and closely connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities in the economy.  The financial system is concerned about money, credit and finance-the three terms are intimately related yet are somewhat different from each other. Indian financial system consists of financial market, financial instruments and financial intermediation

Role/ Functions of Financial System:

A financial system performs the following functions:

* It serves as a link between savers and investors. It helps in utilizing the mobilized savings of scattered savers in more efficient and effective manner. It channelises flow of saving into productive investment.

Flow of funds savings

Flow of financial services

Income and financial claims

Seekers of funds (mainly business firms and government)

Suppliers of funds (mainly households)

* It assists in the selection of the projects to be financed and also reviews the performance of such projects periodically. * It provides payment mechanism for exchange of goods and services.* It provides a mechanism for the transfer of resources across geographic boundaries.* It provides a mechanism for managing and controlling the risk involved in mobilizing savings and allocating credit.* It promotes the process of capital formation by bringing together the supply of saving and the demand for investible funds.* It helps in lowering the cost of transaction and increase returns. Reduce cost motives people to save more.* It provides you detailed information to the operators/ players in the market such as individuals, business houses, Governments etc.

Role of Financial System

Ideally, a well-functioning financial system has to ensure to the extent possible the existence of complete markets, distortion-free prices and systemic stability.

(1) Strictly speaking, in an Arrow-Debreu ‘complete markets’ world, financing of firms and governments by householdsector occurs via financial markets – no transaction costs, full set of contingent markets, no credit rationing, pare to optimalallocation and no role for intermediaries [Davis 2001]. However, subsequently economists have refined this paradigm toincorporate the role of financial intermediaries in ‘complete markets’.

(2) In any modern economy, economic agents respond to observed prices (of money – interest rates, of risk – insurancepremia, option prices) and attempt to make inferences about ‘true but unobserved’ prices (real rate of interest, expected inflation rate, expected volatility).

(3) Any financial system acts as a clearing house for millions of transactions across multiple markets, one more keygoal of the system would be to guarantee systemic stability while potentially allowing (and even perhaps encouraging) failure at the level of weak institutions.

Components/ Constituents of Indian Financial system:

The following are the four main components of Indian Financial system

1. Financial institutions2. Financial Markets3. Financial Instruments/Assets/Securities4. Financial Services.

Financial institutions:

Financial institutions are the intermediaries who facilitates smooth functioning of the financial system by making investors and borrowers meet. They mobilize savings of the surplus units and allocate them in productive activities promising a better rate of return. Financial institutions also provide services to entities seeking advises on various issues ranging from restructuring to diversification plans. They provide whole range of services to the entities who want to raise funds from the markets elsewhere. Financial institutions act as financial intermediaries because they act as middlemen between savers and borrowers. Were these financial institutions may be of Banking or Non-Banking institutions.

Financial Markets:

Finance is a prerequisite for modern business and financial institutions play a vital role in economic system. It's through financial markets the financial system of an economy works. The main functions of financial markets are:

1. to facilitate creation and allocation of credit  and liquidity;2. to serve as intermediaries for mobilization of savings;3. to assist process of balanced economic growth;

Financial Instit utions

Financial Markets

Financial Instr uments/Assets/Securities

Financial Services.

4. to provide financial convenience

Financial Instruments

Another important constituent of financial system is financial instruments. They represent a claim against the future income and wealth of others. It will be a claim against a person or an institutions, for the payment of the some of the money at a specified future date.

Financial Services:

Efficiency of emerging financial system largely depends upon the quality and variety of financial services provided by financial intermediaries. The term financial services can be defined as "activites, benefits and satisfaction connected with sale of money, that offers to users and customers, financial related value".

Flow chart of Indian financial system

Pre-reforms Phase

Until the early 1990s, the role of the financial system in India was primarily restricted to the function of channeling resources from the surplus to deficit sectors. Whereas the financial system performed this role reasonably well, its operations came to be marked by some serious deficiencies over the years. The banking sector suffered from lack of competition, low capital base, low Productivity and high intermediation cost. After the nationalization of large banks in 1969 and 1980, the Government-owned banks dominated the banking sector. The role of technology was minimal and the quality of service was not given adequate importance. Banks also did not follow proper risk management systems and the prudential standards were weak. All these resulted in poor asset quality and low profitability. Among non-banking financial intermediaries, development finance institutions (DFIs) operated in an over-protected environment with most of the funding coming from assured sources at concessional terms. In the insurance sector, there was little competition. The mutual fund industry also suffered from lack of competition and was dominated for long by one institution, viz., the Unit Trust of India. Non-banking financial companies (NBFCs) grew rapidly, but there was no regulation of their asset side. Financial markets were characterized by control over pricing of financial assets, barriers to entry, high transaction costs and restrictions on movement of funds/participants between the market segments. This apart from inhibiting the development of the markets also affected their efficiency.

Financial Sector Reforms in India

It was in this backdrop that wide-ranging financial sector reforms in India were introduced as an integral part of the economic reforms initiated in the early 1990s with a view to improving the macroeconomic performance of the economy. The reforms in the financial sector focused on creating efficient and stable financial institutions and markets. The approach to financial sector reforms in India was one of gradual and non-disruptive progress through a consultative process. The Reserve Bank has been consistently working towards setting an enabling regulatory framework with prompt and

effective supervision, development of technological and institutional infrastructure, as well as changing the interface with the market participants through a consultative process. Persistent efforts have been made towards adoption of international benchmarks as appropriate to Indian conditions. While certain changes in the legal infrastructure are yet to be effected, the developments so far have brought the Indian financial system closer to global standards.

The reform of the interest regime constitutes an integral part of the financial sector reform. With the onset of financial sector reforms, the interest rate regime has been largely deregulated with a view towards better price discovery and efficient resource allocation. Initially, steps were taken to develop the domestic money market and freeing of the money market rates. The interest rates offered on Government securities were progressively raised so that the Government borrowing could be carried out at market-related rates. In respect of banks, a major effort was undertaken to simplify the administered structure of interest rates. Banks now have sufficient flexibility to decide their deposit and lending rate structures and manage their assets and liabilities accordingly. At present, apart from savings account and NRE deposit on the deposit side and export credit and small loans on the lending side, all other interest rates are deregulated. Indian banking system operated for a long time with high reserve requirements both in the form of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). This was a consequence of the high fiscal deficit and a high degree of monetisation of fiscal deficit. The efforts in the recent period have been to lower both the CRR and SLR. The statutory minimum of 25 per cent for SLR has already been reached, and while the Reserve Bank continues to pursue its medium-term objective of reducing the CRR to the statutory minimum level of 3.0 per cent, the CRR of SCBs is currently placed at 5.0 per cent of NDTL.

As part of the reforms programme, due attention has been given to diversification of ownership leading to greater market accountability and improved efficiency. Initially, there was infusion of capital by the Government in public sector banks, which was followed by expanding the capital base with equity participation by the private investors. This was followed by a reduction in the Government shareholding in public sector banks to 51 per cent. Consequently, the share of the public sector banks in the aggregate assets of the banking sector has come down from 90 per cent in 1991 to around 75 per cent in2004. With a view to enhancing efficiency and productivity through competition, guidelines were laid down for establishment of new banks in the private sector and the foreign banks have been allowed more liberal entry. Since 1993, twelve new private sector banks have been set up. As a major step towards enhancing competition in the banking sector, foreign direct investment in the private sector banks is now allowed up to 74 per cent, subject to conformity with the guidelines issued from time to time.

Conclusion: The Indian financial system has undergone structural transformation over the past decade. The financial sector has acquired strength, efficiency and stability by the combined effect of competition, regulatory measures, and policy environment. While competition, consolidation and convergence have been recognized as the key drivers of the banking sector in the coming years

Organization of Regulatory Functions:

A Single Regulator?

Since the beginning of the financial sector reforms in early 1990s, boundaries between products and intermediaries have been blurring rapidly. The entry of several large government-owned as well as non-governmental financial sector participants in a variety of related domains such as securities trading, investment banking, commercial and retail banking, insurance and asset management which are regulated by independent bodies has posed some unique supervisory challenges for the Indian financial system. The paper attempts to argue that such a system of regulation not only artificially fragments the financial markets but also exposes the system to the very real danger of participants behaving as mini-super-regulators as they seek to optimally allocate capitally manically between these fragmented markets.

Insurance Regulatory and Development Authority

Composition of Authority under IRDA Act, 1999

As per the section 4 of IRDA Act' 1999, Insurance Regulatory and Development Authority (IRDA, which was constituted by an act of parliament) specify the composition of

Authority 

The Authority is a ten member team consisting of

    (a)    a Chairman;     (b)    five whole-time members;     (c)    four part-time members,

(all appointed by the Government of India)

Insurance Regulatory and Development Authority

The Insurance Regulatory and Development Authority (IRDA)[1] is a national agency of the Government of India, based in Hyderabad. It was formed by an act of Indian Parliament known as IRDA Act 1999, which was amended in 2002 to incorporate some emerging requirements. Mission of IRDA as stated in the act is "to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto."

Expectations

The law of India has following expectations from IRDA

1. To protect the interest of and secure fair treatment to policyholders;

2. To bring about speedy and orderly growth of the insurance industry (including annuity and superannuation payments), for the benefit of the common man, and to provide long term funds for accelerating growth of the economy;

3. To set, promote, monitor and enforce high standards of integrity, financial soundness, fair dealing and competence of those it regulates;

4. To ensure that insurance customers receive precise, clear and correct information about products and services and make them aware of their responsibilities and duties in this regard;

5. To ensure speedy settlement of genuine claims, to prevent insurance frauds and other malpractices and put in place effective grievance redressal machinery;

6. To promote fairness, transparency and orderly conduct in financial markets dealing with insurance and build a reliable management information system to enforce high standards of financial soundness amongst market players;

7. To take action where such standards are inadequate or ineffectively enforced;

8. To bring about optimum amount of self-regulation in day to day working of the industry consistent with the requirements of prudential regulation

Duties,Powers and Functions of IRDA

Section 14 of IRDA Act, 1999 laysdown the duties,powers and functions of IRDA

(1) Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business.

(2) Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include,

(a) issue to the applicant a certificate of registration, renew, modify, withdraw, suspend or cancel such registration;

(b) protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance;

(c) specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents;

(d) specifying the code of conduct for surveyors and loss assessors;

(e) promoting efficiency in the conduct of insurance business;

(f) promoting and regulating professional organisations connected with the insurance and re-insurance business;

(g) levying fees and other charges for carrying out the purposes of this Act;

(h) calling for information from, undertaking inspection of, conducting enquiries and investigations including audit of the insurers, intermediaries, insurance intermediaries and other organisations connected with the insurance business;

(i) control and regulation of the rates, advantages, terms and conditions that may be offered by insurers in respect of general insurance business not so controlled and regulated by the Tariff Advisory Committee under section 64U of the Insurance Act, 1938 (4 of 1938);

(j) specifying the form and manner in which books of account shall be maintained and statement of accounts shall be rendered by insurers and other insurance intermediaries;

(k) regulating investment of funds by insurance companies;

(l) regulating maintenance of margin of solvency;

(m) adjudication of disputes between insurers and intermediaries or insurance intermediaries;

(n) supervising the functioning of the Tariff Advisory Committee;

(o) specifying the percentage of premium income of the insurer to finance schemes for promoting and regulating professional organisations referred to in clause (f);

(p) specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector; and

(q) exercising such other powers as may be prescribed

Advisory Committee

IRDA has a Chairman and some permanent and some part time members but the regulations are enacted under the guidance of a statutory advisory committee. The advisory committee consists of following individuals and ex-officio authorities:

Mr Hari Narayana is the third Chairman of IRDA.

Mr C S Rao was the second Chairman of IRDA after Mr N Rangachari as the first Chairman. Mr K K Srinivasan is the Nonlife Member of IRDA. There is provision for a panel of other members and part time members. IRDA formed a high powered Insurance Law Reforms Committee known as KPN Committee with important insurance advisors like Mr N Govardhan and Dr K C Mishra as its members. There were also a few non-advisory committee members like Mr Liaquat Khan and Mr T Viswanathan etc. Full force and utility of various institutions like Advisory Committee and self-regulatory organizations are not yet realized as the regulator seems to be in a long learning mode. Due to over delegations, Individual incumbents decide the pace and extent of utilization of prudential and statutory bodies. Research is limited to opinion seeking through legacy channels. Market waits for revision of insurance act and establishment meaningfully functioning regulatory organs devoid of excess delegation and subjective localization of development agencies.

IRDA Journal is available as soft copy in its website. Unlike other Indian administrative Regulatory Agencies IRDA is perceived as a silent regulator with activities confined to its local existence.

New IRDA Chairman

Government of India has circulated to broadbase IRDA chairman selection process. It is felt in the market that placing of retired civil servants as IRDA Chairman has served the purpose of administrative fiefdom of the regulator. Mostly, the regulator has become passive to market realities and most of the original public policy intentions have been systematically replaced by personal preferences. There seems to be no oversight of public policy erosions. Taking advantage of the completion of term of current incumbent, there seem to be an attempt to correct the future course but people do not perceive any outcome to result as the market does not seem to throw up candidates of the stature of Howard Davies for Indian market. But a right leadership is the solution to the requirement of this booming market.

Insurance Business

Insurance business is divided into four classes :

1) Life Insurance 2) Fire Insurance 3) Marine Insurance and 4) Miscellaneous Insurance.

Life Insurers transact life insurance business; General Insurers transact the rest.

No composites are permitted as per law.

LEGISLATION:

Insurance is a federal subject in India. The primary legislation that deals with insurance business in India is:

Insurance Act, 1938, and Insurance Regulatory & Development Authority Act, 1999.

INSURANCE PRODUCTS (for latest information get in touch with the current insurers – website information of insurers is provided at the web page for insurers ):

Life Insurance:

Popular Products: Endowment Assurance (Participating), and Money Back (Participating). More than 80% of the life insurance business is from these products.

General Insurance:

Fire and Miscellaneous insurance businesses are predominant. Motor Vehicle insurance is compulsory.

Tariff Advisory Committee (TAC) lays down tariff rates for some of the general insurance products (please visit website of GIC for details )

CUSTOMER PROTECTION:

Insurance Industry has Ombudsmen in 12 cities. Each Ombudsman is empowered to redress customer grievances in respect of insurance contracts on personal lines where

the insured amount is less than Rs. 20 lakhs, in accordance with the Ombudsman Scheme. Addresses can be obtained from the offices of LIC and other insurers.

Indian Insurance Industry

INSURERS

Insurance industry, as on 1.4.2000, comprised mainly two players: the state insurers:

Life Insurers:

Life Insurance Corporation of India (LIC)

General Insurers:

General Insurance Corporation of India (GIC) (with effect from Dec'2000, a National Reinsurer)

GIC had four subsidiary companies, namely ( with effect from Dec'2000, these subsidiaries have been de-linked from the parent company and made as independent insurance companies.

The Oriental Insurance Company Limited The New India Assurance Company Limited National Insurance Company Limited United India Insurance Company Limited.

OTHER LIFE INSURERS

HDFC Standard Life Insurance Company Ltd.

Max New York Life Insurance Co. Ltd.

ICICI Prudential Life Insurance Company Ltd.

Kotak Mahindra Old Mutual Life Insurance Limited

Birla Sun Life Insurance Company Ltd.

Tata AIG Life Insurance Company Ltd.

SBI Life Insurance Company Limited .

ING Vysya Life Insurance Company Private Limited

Bajaj Allianz Life Insurance Company Limited

Metlife India Insurance Company Ltd.

IDBI Fortis Life Insurance

Reliance Life Insurance Company Limited.

Aviva Life Insurance Co. India Pvt. Ltd.

Sahara India Insurance Company Ltd.

Shriram Life Insurance Company Ltd.

Bharti AXA Life Insurance Company Ltd.

Future Generali India Life Insurance Company Limited

Canara HSBC Oriental Bank of Commerce Life Insurance Company Ltd.

Aegon Religare Life Insurance Company Ltd.

DLF Pramerica Life Insurance Company Ltd.

Star Union Dai-ichi Life Insurance Co. Ltd.,

OTHER GENERAL INSURERS

Name of the Company

Royal Sundaram Alliance Insurance Company Limited

Reliance General Insurance Company Limited.

IFFCO Tokio General Insurance Co. Ltd

TATA AIG General Insurance Company Ltd.

Bajaj Allianz General Insurance Company Limited

ICICI Lombard General Insurance Company Limited.

Apollo DKV Insurance Company Limited

Future Generali India Insurance Company Limited

Universal Sompo General Insurance Company Ltd.

Cholamandalam General Insurance Company Ltd.

Export Credit Guarantee Corporation Ltd.

HDFC-Chubb General Insurance Co. Ltd.

Bharti Axa General Insurance Company Ltd.

Raheja QBE General Insurance Co. Ltd

Shriram General Insurance Co. Ltd.

Securities and Exchange Board of IndiaSEBI is the regulator for the Securities Market in India. It was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Chaired by C B Bhave, SEBI is headquartered in the popular business district of Bandra-

Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai and Ahmedabad.

Organization structure

Chandrasekhar Bhaskar Bhave is the sixth chairman of the Securities Market Regulator. Prior to taking charge as Chairman SEBI, he had been the chairman of NSDL (National Securities Depository Limited) ushering in paperless securities. Prior to his stint at NSDL, he had served SEBI as a Senior Executive Director. He is a former Indian Administrative Service officer of the 1975 batch.

The Board comprises[2]

Name Designation As per

CB Bhave Chairman SEBI CHAIRMAN (S.4(1)(a) of the SEBI Act, 1992)

KP Krishnan Joint Secretary, Ministry of Finance Member (S.4(1)(b) of the SEBI Act, 1992)

Anurag Goel Secretary, Ministry of Corporate Affairs Member (S.4(1)(b) of the SEBI Act, 1992)

Dr G Mohan Gopal Director, National Judicial Academy, Bhopal Member (S.4(1)(d) of the SEBI Act, 1992)

MS Sahoo Whole Time Member, SEBI Member (S.4(1)(d) of the SEBI Act, 1992)

Dr KM Abraham Whole Time Member, SEBI Member (S.4(1)(d) of the SEBI Act, 1992)

Mohandas Pai Director, Infosys Member (S.4(1)(d) of the SEBI Act, 1992)

Prashant Saran Whole Time Member, SEBI Member (S.4(1)(d) of the SEBI Act, 1992)

Preamble

The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as

“…..to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto”

Functions and responsibilities

SEBI has to be responsive to the needs of three groups, which constitute the market:

the issuers of securities the investors the market intermediaries.

SEBI has three functions rolled into one body quasi-legislative, quasi-judicial and quasi-executive. It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. Though this makes it very powerful, there is an appeals process to create accountability. There is a Securities Appellate Tribunal which is a three member tribunal and is presently headed by a former Chief Justice of a High court - Mr. Justice NK Sodhi. A second appeal lies directly to the Supreme Court.

SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless rolling settlement on T+2 basis). SEBI has been active in setting up the regulations as required under law.

SEBI has also been instrumental in taking quick and effective steps in light of the global meltdown and the Satyam fiasco.It had increased the extent and quantity of disclosures to be made by Indian corporate promoters. More recently, inlight of the global meltdown,it liberalised the takeover code to facilitate investments by removing regulatory strictures.

Reserve Bank of IndiaThe Reserve Bank of India is the central bank of India and controls the the monetary policy of the rupee as well as 171 billion US-Dollar (2006) currency reserves. The institution was establisehd on 1 April 1935 during the British-Raj in accordance with the provisions of the Reserve Bank of India Act, 1934 [1] and plays an important part in the development strategy of the government.

HISTORY

The central bank was founded in 1935 to respond to economic troubles after the first world war.[2] The Reserve Bank of India was set up on the recommendations of the Hilton Young Commission. The commission submitted its report 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 in the best interests of the country. The Central Office of the Reserve Bank was initially established in Kolkata, Bengal, but was permanently moved to Mumbai in 1937. Though originally privately owned, the RBI has been fully owned by the Government of India since its nationalization in 1949.

Between 1950 and 1960 the indian government developted a centrally planned economic policy and focused on the agricultural sector. The administration nationalized commercial banks[3] and established, based on the Banking Companies Act, 1949 (later called Banking Regulation Act) a central bank regulation as part of the RBI. Beside that the central bank was orderd to support the economic plan with loans.[4]

As a result of bank crashes the reserve bank was requested to establish and monitor a deposit insurance system. It should restore the trust in the national bank system and was initialized on 7. Dezember 1961. The indian government founded funds to promote the economy and used the slogan Developing Banking. The Gandhi administration and their successors restuctured the national bank market and nationalized a lot of instituts.[5] As a result the RBI had to play the central part of control and support of this public banking sector.[6]

It has 22 regional offices, all of them in state capitals.

Retiring directors

On 1 July 2006, in an attempt to enhance the quality of customer service and strengthen the grievance redressal mechanism, the Reserve Bank of India constituted a new department — Customer Service Department (CSD).

Main Functions of RBI

Reserve Bank of India is the main monetary authority of the country. It formulates, implements and monitors the monetary policy and thereby plays a key role in maintaining price stability and ensuring adequate flow of credit to productive sectors. RBI is the regulator and supervisor of the financial system in the country. It prescribes broad parameters of banking operations within which the country's banking and financial system functions. It manages the foreign exchange of the country. Performs merchant banking function for the central and the state governments; also acts as their banker. Maintains banking accounts of all scheduled banks. Issues and exchanges or destroys currency and coins not fit for circulation.

Main Functions

Monetary Authority

Formulates, implements and monitors the monetary policy. Objective: maintaining price stability and ensuring adequate flow of credit to

productive sectors.

Regulator and supervisor of the financial system

Prescribes broad parameters of banking operations within which the country's banking and financial system functions.

Objective: maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective redressal of complaints by bank customers.

Manager of exchange control

Manages the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly

development and maintenance of foreign exchange market in India.

Issuer of currency

Issues and exchanges or destroys currency and coins not fit for circulation. Objective: the main objective is to give the public adequate supply of currency of

good quality and to provide loans to commercial banks to maintain or improve the GDP(Gross Domestic Product).

The basic objectives of RBI are to issue bank notes, to maintain the currency and credit system of the country to utilize it in its best advantage, and to maintain the reserves. RBI maintains the economic structure of the country so that it can achieve the objective of price stability as well as economic development, because both objectives are diverse in themselves.

Developmental role

Performs a wide range of promotional functions to support national objectives and industries.[8] The RBI faces a lot of inter-sectoral and local inflation-related problems. Some of this problems are results of the dominant part of the public sector.[9]

Related functions

Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. The National Housing Bank (NHB) was established in 1988 to promote private real estate acquisition.[10]

Bank to banks: maintains banking accounts of all scheduled banks

There is now an international consensus about the need to focus the tasks of a central bank upon central banking. RBI is far out of touch with such a principle, owing to the sprawling mandate described above. The recent financial turmoil worldover, has however, vindicted the Reserve Bank's role in maintaining financial stability in India.

Tarapore committee

The Tarapore committee is a committee setup by the Reserve Bank of India under the chairmanship of former RBI deputy governor S S Tarapore to "lay the road map" to capital account convertibility.

The five-member committee recommended a three-year timeframe for complete convertibility by 1999-2000

Bibliography

Indian Financial System by M.Y.Khan.1980.

The Financial System of India by Gyan Chand.2000

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