Role of RBI
| Pre-reform | Post-reform | |
| Developmental Role: the developmental role has increased in view of the changing structure of the economy with a focus on SMEs and financial inclusion | Priority Sector Lending: Introduced from 1974 with public sector banks. Extended to all commercial banks by 1992 | In the revised guidelines for PSL the thrust is on ensuring adequate flow of bank credit to those sectors that impact large segments of the population and weaker sections, and to the sectors which are employment intensive such as agriculture and small enterprises |
| Lead Bank Scheme | Special Agricultural Credit Plan introduced. | |
| Kisan Credit Card scheme (1998-99) | ||
| Focus on credit flow to micro, small and medium enterprises development | ||
| Financial Inclusion | ||
| Monetary Policy: the role of RBI has changed from regulating credit and money flow directly to using market mechanisms for achieving policy targets. MP framework has changed to promote financial deregulations and market development. Role as a facilitator rather than as principal actor. | M3 as an intermediary target | Multiple Indicator Approach |
| Regulation of foreign exchange | Management of foreign exchange | |
| Direct credit control | Open Market Operations, MSS, LAF | |
| Rupee convertability highly managed | Full current ac convertability and some capital account convertability | |
| Banker to the government | Monetary policy was linked to the fiscal policy due to automatic monetisation of the deficit | Delinking of monetary policy from the fiscal policy. From 2006, under FRBM, RBI ceased to participate in the primary market auctions of the central government’s securities. |
| As regulator of financial sector: As regulator of the financial sector, RBI has faced the challenge of regulating the increasing financial sector in India. Credit flows have increased. RBI had to make sure that financial institutions are regulated in a way to protect the consumers while not impeding economic growth. | Reduction in SLR | |
| Custodian of FOREX reserves | Forex reserves have increased drastically. Need to manage it adequately and avoid inflationary impact | |
| Inflation | Direct instruments were used | Multiple indicators |
| Financial Stability | Closed economy | Increased FDI and FII has made financial stability one of the policy objectives. |
| Money Market | Narsimhan Committee (1998) recommended reforms in the money market
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BPCS Notes brings Prelims and Mains programs for BPCS Prelims and BPCS Mains Exam preparation. Various Programs initiated by BPCS Notes are as follows:-