RESERVE BANK OF INDIA SUPERVISORY FUNCTIONS :
In addition to its traditional central banking functions. the Reserve bank has certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act. 19.34. and the Banking Regulation Act. 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks. relating to licensing and establishments. branch expansion. liquidity of their assets. management and methods of working. amalgamation. reconstruction. and liquidation. The RBI is authorised to carry out periodical inspections of the banks and to call for retums and necessary information from them. The nationalisation of . 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realisation of certain desired social objectives. The supervisory func¬tions of the RBI have helped a great deal.in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation.
Currency Chests ': The Reserve Bank has made adequate administrative arrangements for undertak¬ing the function of distribution of currency notes and coins. The Issue Department has opened its offices in 10 leading cities for this purpose. Moreover. currency chests have been maintained allover the country to facilitate the expansion and contraction of currency in the country. Currency chests are receptacles in which stocks of new or reissu¬able notes are stored along with rupee coins. The cur¬rency chests and repositories are run by the Reserve Bank. State Bank. and its subsidiaries. public sector banks and Government Treasuries and Sub-Treasur¬ies. The stock of new notes is thus held in currency chests scattered over the entire country and maintained by the public sector banks in most of the cases. There are several advantages to the bank or the Treasury maintaining a currency chest:
1. If its payments on a particular day exceed its own balance. it can immediately withdraw funds from the chest. Likewise. if the funds are in surplus it can deposit into it any such surplus funds. Thus the ne-cessity for the physical transfer of cash at frequent intervals from one place to another is avoided. The Tr~asuries and bank branches work with relatively small balances.
2. The currency chests f~cilitate the exchange of rupees coins for notes and supply of notes of lower denomination for those of higher denominations and vice versa and also the issue of new notes for old and' soiled notes.
3. The currency chests also serve as the basis for providing remittance facilities to banks and the pub¬lic .
• (b) Loans and Advances. Section 17 (4) enables the Reserve Bank to grarit loans and advances to the sched-uled banks. repayable on demand or on the expiry of fixed periods not exceeding 90 days against the secu¬rity of the follOwing:
(i) Stocks. funds and securities (other than im¬movable property) in which a trustee is authoriseQ.to
invest trust money .
(ii) Gold or silver or documents of title to the same. (iii) Such bills of exchange and promissory notes as are eligible for purchase or re-discount by the Re¬serve Bank or those guaranteed by the State Govem-ment as to the repaYment of the principal and inter¬est.
(iii) Promissory notes of any scheduled bank or State Co-operative Bank supported by documents of title to goods (such documents having been transferred. as¬signed or pledged to any other bank as security for a loan or advance made for bonafide commercial or trade transactions or for the purpose of financing agricul¬tural operations or the marketing of crops).
Section 17 (3-A) was inserted in 1962 to enable the banks to secure accommodation from the Reserve Bank of India on easier terms in connection with ex¬port finance provided by them. The Reserve Bank may make loans and advances to any scheduled bank against the promissory note of the latter repayable on demand or on the expiry of a fixed period not exceeding 180 days. provided the borrowing bank fumishes a decla¬ration in writing to. the effect that-
(i) it holds bills of exchange arising out of any trans¬action relating to export of goods from India, which are drawn in India and on any place in a country out¬side India which is a member of the IMF or notified by the Reserve Bank and which mature within 180 deWS from the date ofloan and advance. The borrowing bank shall hold the bills of a value equal to the amount of such loan from the Reserve Bank and shall continueto hold such bills. till the loan is repaid. up to the value of the amount of the outstanding loan; or
(ii) it has granted a pre-shipment loan or advance to an exporter or any other person in India to enable him to export goods froIIl India. The amount of such loan should not be less than the amount borrowed by the bank from the Reserve Bank.
The Reserve Bank of India. introduced 'Export Bills Credit Scheme in March. 1963 to give effect to this pro¬vision. The main difference between this scheme and the discounting of foreign bills is that in case of the former the banks are not required to lodge the foreign bills with the Reserve Bank (as is required under re discounting). They have just to give a declaration.to the effect that they hold such bills of the value equal to the amount of the loan.
A new sub-section 3-B was inserted by the Reserve Bank ofIndia (Amendment) Act, 1974. Under this sub-section, the Reserve Bank of India may make to any scheduled bank or State Co-operative Bank, loan and advances repayable on demand or on the expiry of fixed periods not exceeding 180 days against the promissory notes of such bank. The borrowing bank is required to fumish a declaration in writing to the effect that it has made loans arid advances for (i) bonaftdecommer¬cial or trade transactions, or'(ii) financing agricultural operations or the marketing of crops or for other agri¬cultural purposes as set out in the declaration. The declaration shall also include any other particulars as required by the Reserve Bank.
Emergency Advances
The commercial banks and co-operative banks may be granted emergency advances by the Reserve Bank under Section 18 on such special occasions when the Reserve Bank is satisfied that the grant of such loans is necessaiy for the purpose of regulating credit in the interests of Indian trade, commerce, industry and ag¬riculture. Such emergency advances may be given not¬withstanding any limitation contained in Section 17.
This Section; as amended in 1978, authorises the Reserve Bank of India:
1. to purchase, sell or discount any bill of exchange or promissory note, which may not be eligible for purchase or discount by the Reserve Bank of India under Section 1'7, or
2. to make loans or advances to (a) a State Co¬operative Bank or (b) on the recommendation of a State Co-operative Bank to a Co-operative Society registered within the area in which the State Co-operative Bank operates, or (e) any other person, repayable on demand or on the expiry offixed periods, not exceeding 90 days on such terms and conditions as the Bank may con¬sider to be sufficient.
