How Reserve Bank of India keep an eye on the functioning of other banks? Why is it necessary?
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Explanation:
Reserve Bank of India (RBI) supervised the banks in the following ways : (i) It monitors the balance kept by banks for day-to-day transactions. (ii) It checks that the banks give loans not just to profit-making businesses and traders but also to small borrowers.
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Yes it is true that the Reserve bank of India keeps an eye on the functioning of other banks.
They supervise the functioning of formal sources on loans.
For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive.The Reserve Bank of India monitors that the banks actually maintain the cash balance.Similarly,the RBI sees that the banks give loans not just to profit-making businesses and traders but also to small cultivators,small scale industries etc.Periodically, banks have to submit information to the RBI on how much they are lending, to whom and at what interest rate etc.
It is necessary that RBI keeps an eye on the functioning of other banks because of the following reasons:-
-It ensures safety to the bank deposits of people.
-It helps in collection of economic data all over the country.
-It contains corrupt practices from creeping within banks.
-Information forwarded by banks to RBI helps Ministry of Finance in drafting and presentation of National Budget every year.
They supervise the functioning of formal sources on loans.
For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive.The Reserve Bank of India monitors that the banks actually maintain the cash balance.Similarly,the RBI sees that the banks give loans not just to profit-making businesses and traders but also to small cultivators,small scale industries etc.Periodically, banks have to submit information to the RBI on how much they are lending, to whom and at what interest rate etc.
It is necessary that RBI keeps an eye on the functioning of other banks because of the following reasons:-
-It ensures safety to the bank deposits of people.
-It helps in collection of economic data all over the country.
-It contains corrupt practices from creeping within banks.
-Information forwarded by banks to RBI helps Ministry of Finance in drafting and presentation of National Budget every year.
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