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
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
Direct instruments were used
Increased FDI and FII has made financial stability one of the policy objectives.
Narsimhan Committee (1998) recommended reforms in the money market
BPCS Notes brings Prelims and Mains programs for BPCS Prelims and BPCS Mains Exam preparation. Various Programs initiated by BPCS Notes are as follows:-