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CENTRAL BANK, MOON BaNC, SAL CC BM - PBCM, BROL, CM CM, TND, TND 2, BCCT…
CENTRAL BANK
FUNCTIONS OF CENTRAL BK
BKR TO COMM BKS
- Cash reserves: maintains centrally, larger elasticity in credit ctrl, manages emergencies.
- Lender of last resort: helps prevent failure / breakdown where a Bk is unable to manage its fin obligations
- Clearing House function: Since all comm bks have A/c with Central Bank, it helps settle their accounts by entries & transfers.
FOREX CUSTODIAN
- reserves of key currencies (USD, GBP)
- gold bullion
- These reserves help it in 2 ways:
a. to overcome balance of payment difficulties
b. to maintain exchange rate stability
BKR TO GOVT
- Fiscal Agent: manages public borrowings, collects taxes, reps country in IMF, World Bank etc.
- Advisor: on all financial & economic matters (Eg: trade policy etc)
- Banker: accepts deposits, makes payments, gives short-term loans, maint a/c of govt depts
CREDIT CONTROL
- Most imp function of Central Bank
- very important for:
a. economic growth & smooth functioning
b. exchange rate stability
c. Inflation control
MONOPOLY OF NOTE ISSUE
- Public Faith in paper currency
- Uniformity in note circulation
- Money supply - central control
- Stabilisation of internal & ext currency value
CREDIT CONTROL
QUAL METHODS
(Selective Methods)
CM CM
- Consumer Cr Reg
a. consumer durables
b. Hire-purchase of
c. Incr down-payment, reduce repayment pd
.
- Margin Reqmt Regulation
a. Difference betw value of security offered & amt of loan advanced
b. Margin increased, credit contraction
.
- Credit Rationing - ceilings fixed on loans & advances
a. fix max amt
b. fix maximum ratio (based on total deposits held by Bk)
.
- Moral Suasion
a. RBI adopts policy of persuasion & moral influence
b. Makes Comm bks fall in line with its policy
c. announces policies through circulars, directives, letters.
d. advises Bks to direct credit supply in desired sectors.
e. Banks usually don't ignore.
QUAN METHODS
(Gen Methods)
BROL
- Bank Rate:
a. rate at which Cent Bank lends to Comm Bank
b. against approved securities & BoE
c. for meeting their long-term needs
.
- REPO Rate & Reverse REPO Rate
a. short-term needs
.
- Open Market Ops
a. buying & selling of Govt Sec (like NSC)
b. By RBI to/from the public and comm banks
.
- Legal Reserve Reqmt
a. CRR - minimum %, net D&T deposits, kept by Comm Bks with RBI
b. SLR- maintained by Banks with themselves
DIFFERENCE
- Target: Total vol of Credit v Specific uses of credit
- Non-discriminatory v. Discriminatory
- Directly affects: Lenders v. Lender & borrower
DEFN & IMP
DEFN
SAL CC BuM
.
- Supreme monetary auth
- at the Apex of the monetary & bkg structure
- Leader of money market
- Controls, regulates and supervises commercial bks
- Controls currency & credit policy of the country,
- Banker to govt & comm bks
- Monopoly of note issue
IMP
- Paper std, which is widely adopted, requires mangmt
Credit control: vast expansion in trade & commerce, auth reqd to control cr expansion & contraction activities of comm bks
- Banker to Govt: vast expansion in monetary activities of Govt, Govt requires a banker
- Monetary Policy control: reqd for maintaining full empl & price stability
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CENTRAL V COMMERCIAL BK
MOON BaNC
- Meaning
- Objective
- Ownership
- Note-issue
.
- Banker to
- Number of branches
- Credit
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