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Week 9 - Indian and International Monetary System

I. Reserve Bank of India (RBI)

  • Establishment & Governance

    • Established: April 1, 1935 under the RBI Act, 19341.

    • Headquarters: Moved from Kolkata to Mumbai in 19372.

    • Ownership: Owned by the Ministry of Finance, Government of India3.

    • Governance: Managed by a Central Board of Directors appointed by the Government4.

  • Key Functions

    • Monetary Authority: Formulates policy to maintain price stability and ensure growth5.

    • Banker to Government: Manages banking transactions, receives/pays money, and floats loans for the Central and State Governments6666.

    • Banker to Banks: Settles inter-bank transactions and lends to banks7.

    • Currency Management: Sole authority for issuing notes8.

      • Note: Coins are issued by the Government of India but circulated by RBI9.

    • Foreign Exchange Management: Administers the Foreign Exchange Management Act (FEMA) (replaced FERA of 1973)10.

    • Financial Inclusion: Promotes literacy and credit to rural/MSME sectors11.

    • Payment Systems: Regulates payments like UPI, ATMs, and clearing systems12121212.

  • Recent Initiatives

    • PRAVAAH Portal: Centralized web-based platform for regulatory approvals and authorizations13.

    • Retail Direct Mobile App: Allows retail investors to buy Government Securities (G-Secs) directly14.

    • FinTech Repository: Database of FinTech entities for better policy design15.

    • UPI Enhancements: Introduced UPI123Pay, UPI Lite, and linked RuPay credit cards to UPI16.

    • PIDF (Payments Infrastructure Development Fund): Deploys POS/QR infrastructure in underserved areas17.

II. National Bank for Agriculture & Rural Development (NABARD)

  • Overview

    • Status: Apex development bank for rural areas1818.

    • Established: 1982 under Act 61 of 1981191919.

    • Committee: Formed based on the recommendations of the B. Sivaraman Committee (1979)20.

  • Key Functions

    • Refinancing: Provides funds to Cooperative Banks and RRBs21.

    • Institution Building: Training and capacity building for rural institutions22.

    • SHG Support: Promotes Self-Help Groups to empower women23.

  • Major Milestones

    • SHG Bank Linkage Project (1992): World’s largest microfinance project connecting unorganized sector to formal banking24242424.

    • Kisan Credit Card (KCC) (1998): Provides timely credit for short-term crop cultivation and post-harvest expenses25.

    • Watershed Development: Sustainable climate proofing; financed 1/5th of India's rural infrastructure26262626.

III. Regional Rural Banks (RRBs) & Cooperative Banks

  • Regional Rural Banks (RRBs)

    • Established: 197527.

    • Objective: Serve rural areas, small farmers, artisans, and agricultural laborers28.

    • Ownership Structure: Jointly owned by:

      1. Government of India

      2. Sponsored Bank

      3. State Government29.

  • Cooperative Banks

    • Structure: Member-owned and Member-controlled30.

    • Motto: Not-for-profit; prioritize member welfare over profit maximization31.

    • Governance: Democratic (members elect the board)32.

    • Example: Dairy cooperative banks33.

IV. International Monetary Fund (IMF)

  • Overview

    • Established: 19443434.

    • Membership: 190 countries35.

    • Primary Goal: International monetary cooperation, financial stability, and crisis management36363636.

  • Key Functions

    • Surveillance: Monitoring economic policies of members and providing advice37.

    • Financial Assistance: Lends to countries facing crises to restore stability (does not lend for specific projects like development banks)38.

    • Capacity Development: Technical assistance and training (e.g., tax collection, governance)39.

  • Funding Sources

    1. Quotas: Main source; based on a member's position in the world economy40.

    2. New Arrangements to Borrow (NAB): Second line of defense41.

    3. Bilateral Borrowing Agreements: Third line of defense42.

V. World Bank Group

The World Bank Group consists of five institutions working for sustainable solutions43.

  1. IBRD (International Bank for Reconstruction and Development)

    • Role: Loans and guarantees to Middle-Income and creditworthy low-income countries44.

    • Origin: Created in 1944 to rebuild Europe after WWII45.

    • Combined with IDA, it forms the "World Bank"46.

  2. IDA (International Development Association)

    • Role: Fund for the Poorest Countries47.

    • Focus: Crisis preparedness, Gender, Human Capital, Climate Change48484848.

  3. IFC (International Finance Corporation)

    • Role: Focused strictly on the Private Sector in emerging markets49.

    • Function: Mobilizes private investment and creates markets50.

  4. MIGA (Multilateral Investment Guarantee Agency)

    • Role: Promotes FDI by providing Political Risk Insurance and guarantees against non-commercial risks51.

  5. ICSID (International Centre for Settlement of Investment Disputes)

    • Role: Settlement of international investment disputes (Investors vs. States)52525252.

VI. Asian Development Bank (ADB)

  • Overview

    • Established: 196653.

    • Headquarters: Manila, Philippines54.

    • Membership: 68 members (49 from Asia-Pacific, 19 outside)55.

    • Initiative of: UN ESCAP (Economic and Social Commission for Asia and the Pacific)56.

  • Mission & Focus

    • Poverty Reduction: Primary goal for Asia-Pacific57.

    • Infrastructure: Invests in roads, energy, water (e.g., Dhaka Water Supply, SASEC Road Connectivity)58585858.

    • Gender Equality: Integrates gender goals into projects (e.g., Water Supply in Nepal)59.