Which Bank Is Called Bankers Bank Of India?
If you're seeking the solution to the question "which bank is known as the bank of banks?" you've come to the right spot. The Reserve Bank of India (RBI) is commonly referred to as the bank of banks or bankers' bank. In this post, we will discuss the rationale for the same.
The Indian banking industry is regarded as the pillar of our economy. In India, the demand for banking services is augmented by increased individual income and disposable income.
The ensuing increase in demand for their services contributes to the expansion and growth of the banking sector.
The Reserve Bank of India, our country's central bank, is the ultimate authority responsible for running, controlling, and administrating India's banking industry.
It formulates several policies to ensure our economy's stability, structure, and evolution. Banker's bank is one of the most significant duties undertaken by the Reserve Bank of India. This article provides an in-depth analysis of the statement.
What are the RBI's (Bankers' Bank) objectives?
According to the preamble, RBI's primary purpose is to regulate the issuance of banknotes and the accumulation of reserves to ensure monetary stability in the nation.
It is responsible for administering the nation's credit and currency system and establishing the beneficial and necessary monetary policy framework. Growth and price stability goals must be at the center of all efforts.
What Are The Functions of RBI?
It is essential to comprehend the many functions RBI performs and its dominant role in the banking industry and economy. The ten essential roles of RBI are as follows:
- Controlling the production of monetary notes and coins.
- Maintaining vigilance in the financial markets.
- The Central and State Government's banker.
- The management of foreign exchange.
- Responsible for managing the payment and settlement system.
- Manager of the government's debts.
- Regulating various types of banks.
- Concentrating on financial inclusion and growth.
- The Banker to Banks
- Providing consumer protection and awareness.
How Does The Bank of Banks Function?
One of the essential functions of the Reserve Bank of India is that of a banker's bank. But we never considered why the RBI is said to as the mother of all banks. Therefore, let us briefly examine the many causes behind this.
Management of rates
The RBI manages various interest rates for each bank. The RBI determines the rates, and every bank is required to comply.
The rates may include bank, repo, reverse, and residual standing facility rates. The RBI likewise determines the proportion of reserves each bank must hold with the RBI.
It consists of the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR). RBI determines foreign exchange rates as well. In addition, RBI is responsible for establishing the benchmark rate, such as the MIBOR or Mumbai Interbank Offer Rate.
The Reserve Bank of India also predetermines the loan rates and deposit rates. No bank may charge interest rates lower than those set by the RBI. Additionally, it facilitates the money market and phone market rates.
Maintaining Reserves
The reserve fund ratio is the amount of cash each bank must hold in reserve with the Reserve Bank of India.
It is computed as a proportion of the NET demand and time responsibility. The NDTL is calculated by aggregating the balances of the bank's savings account, current account, and fixed deposits. The RBI keeps this reserve to sustain liquidity in banks and the economy.
Similarly, the Statutory Liquidity ratio is the reserve that all banks must hold in addition to the CRR.
It indicates that a certain proportion of reserves must be retained in cash, gold, bonds, or RBI-approved assets. The bank maintains these reserves for liquidity considerations. The RBI modifies the CRR and SLR rates.
Record interbank obligations
Every bank is required to have an account with the RBI. All transactions between banks are conducted through this account. RBI keeps an eye on the transactions.
Frequently, when a bank needs a loan, it obtains one from another institution. RBI also determines the rate at which one bank can lend to another.
And the money is transferred from the account for interbank liabilities. If the RBI discovers a disparity, they have the authority to stop the transaction.
Keeping an eye on operations and defaults
RBI establishes numerous operational policies for the bank and revises them as appropriate. In addition, it publishes operational instructions. RBI documents all credit-related information.
The rules and regulations governing the operation of a bank are also well-defined. If RBI believes a transaction or behavior is immoral, dubious, or suspicious, it might investigate the bank.
Facilitate cash pooling
Cash pooling refers to transferring all transactions to the main company or branch. Cash is transferred from the main branch to other branches based on surplus or deficit.
Assume a bank with the initials ABC has two other branches, A and B. Branch A has a cash shortage, while Branch B has a surplus. Thus, ABC can move funds from B to A; RBI facilitates this transfer.
Fund management
RBI assists the bank in managing its finances. RBI offers banks short-term loans and advances against any collateral when necessary. It has a mechanism known as the Centralised Fund Management System for handling bank funds. Banks can inquire about their account balances and move funds from the account.
Risk management
The Reserve Bank of India must manage the various risks that banks face, including liquidity risk, interest rate, creditworthiness, market volatility, and operational risk.
The Reserve Bank of India (RBI) has outlined the BASEL criteria for three significant sectors. A bank concentrates on three areas to manage the risk: minimum capital standards, periodic supervisory review, and strict determinant rules.
Lender of last resort
When no other lender gives credit to a particular bank, the RBI steps in as the lender of last resort. This signifies that the RBI will give the bank loans at the current interest rate.
In addition, RBI would take necessary measures to maintain the bank's liquidity and ensure it does not become insolvent. This helps protect consumer interests and prevents the bank from failing or collapsing.
The Reserve Bank of India releases circulars and recommendations for managing banks' Non-Performing Assets.
A method is designed in which NPAs will be identified continuously and categorized suitably. Within thirty days, the bank must recognize any defaults. If there are many NPAs, the government may take stern action and investigate them.
Asset Liability management
RBI must manage the bank's risk and liquidity, or there is a high likelihood that the bank may fail. Therefore, the RBI employs a variety of mechanisms to control liquidity, including forming the ALCO committee.
By managing the bank's assets and liabilities, liquidity can be maintained, and risk can be reduced. Many tools, such as maturity gap analysis, duration gap analysis, etc., control the asset-liability mismatch.
Conclusion
In light of the preceding, we may conclude that RBI is referred to as the bank of banks since it plays a crucial role in the economy by overseeing the operations of every bank in the country. It also regulates the economy's money flow and banking operations. RBI serves as a savior during times of crisis.
If you want to get information from any good agent related to Loans and Credit Cards, then definitely visit Finndit.Com once because Finndit will give you the correct information about the agent of your area.
View Also -
Which Bank Provides The Home Loan In Gram Panchayat?
What Is The Unbilled Amount In A Credit Card?
How To Claim ATM Card Insurance?
