Reserve bank of india achievement and failures describe
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✨As we know, the RBI has many achievements and failures, which have helped for it's betterment.
◼Here are some achievements of the RBI:
1️⃣ It's Flexible Monetary Policy- The Reserve Bank has adopted a flexible monetary policy. It has introduced changes in monetary regulations keeping in view the seasonal character of Indian money market. The pressure of seasonal demand has been adequately met. This has resulted in negligible seasonal fluctuations of money.
2️⃣ Stable Structure of the Interest Rates- The interest rate policy of the Reserve Bank has resulted into a relatively stable structure of interest rates in the economy. The bank initially adopted cheap money policy from its beginning.
3️⃣ The policy of Modern Banking and Credit structure- The Reserve Bank has succeeded in building up a sound modern banking and credit structure. The Bank enjoyed vast supervisory powers which enabled it to guide the development of banking on sound lines. Training of bank personnel has improved their efficiency. The geographical and fundamental coverage of the banking has also increased substantially.
4️⃣ It's Cheap Remittance Facilities- The Reserve Bank has introduced very cheap remittance facilities. These have been widely used by the commercial banks, the Government and cooperative banks.
5️⃣ The Successful Management of the Public Debt- The Reserve Bank has successfully managed the public debt. It has floated loans for the Government at low rates of interest. It has helped in raising funds for the expansion of public sector in the economy. It has also provided short term advances to the Government.
6️⃣ Stability in the Exchange- The Reserve Bank has succeeded in maintaining the exchange stability to a large extent. The Bank has maintained the exchange value of the rupee at a relatively higher rate than would have prevailed in the market. This has resulted in the judicious use of exchange control measures to keep the demand for foreign exchange within the limits of the available supplies.
◼Here are some failures of the RBI:
1️⃣ Lack of Adjustment in the Money Market- Reserve Bank has succeeded in controlling the organised sector of the Money Market, but not the unorganized one. It has virtually failed in regulating or controlling the activities of rural money lenders and other indigenous bankers.
2️⃣ Lack of Uniformity in the Rate of Interest- Because of the lack of control on different sectors of the money market, different rates of interest continue to prevail. Outside the organised sector of the money market, rates of interest are exorbitantly higher than the bank rate. Reserve Bank has rather miserably failed in this regard.
3️⃣ Lack of Bill Market- Reserve Bank prepared a plan for the development of Bill Market in 1952. But till date there is no independent and organised widespread bill market in India. Bill Market in India does not receive first-rate Discountable Bills.
4️⃣ Insufficient Availability of Agricultural Credit- Despite the fact that lot of steps have been initiated by the Reserve Bank to provide enough agricultural credit, its availability continues to be far behind its requirement. Agricultural credit it still being dominated by rural money lenders and other indigenous bankers who charge very high interest rates.
5️⃣ Insufficient Banking Facility- During 46-years, after independence, Reserve Bank has tried to spread banking activity in all parts of the country. Yet it is not sufficient in view of the large size of population. Also, most of the banking activity is concentrated in urban areas. People in small villages and sub-urban areas still deprived of the banking facility.
6️⃣ Instability in the Internal Value of the Rupee- Instability in the internal value of the rupee has been the biggest failure of the Reserve Bank. Because of the ever increasing circulation of money, prices have been rising almost non-stop. Value of the rupee has been reduced to just 7 Paise during the last 47-years or so.
Hope it helps.
Here are the five steps of RBI under Rajan:
Asset quality review: Rajan last year undertook a massive overhaul of banks' stressed assets, asking each bank to provision for all assets which could potentially sour by March 2016.
For this, Rajan had set a deadline of March 2017 for them to clean up the bad loans on their balance sheets.
This asset quality review not only forced banks to provide massive capital for such loans, but also led to quarterly losses in March for several state-run banks.
The latest guidelines, which were announced this week, aimed at helping some troubled borrowers restructure and turn around quickly, by easing the interest burden on them, and in turn also speed up the asset recovery process for banks.
Indradhanush: The government last year announced a revamp plan, 'Indradhanush', to infuse Rs 70,000 crore in state-owned banks over four years, while they will have to raise a further Rs 1.1 lakh crore from the markets to meet their capital requirements in line with global risk norms Basel III.
As per the capital infusion road map, PSU banks will get Rs 25,000 crore this fiscal and as well as the next fiscal and Rs 10,000 crore each in 2017-18 and 2018-19.
Out of Rs 25,000 crore set for the current fiscal, the government has infused about Rs 20,088 crore in 13 public sector banks.
Marginal Cost of funds: MCLR was the new lending regime which was set up by RBI to faster the monetary policy rates transmission from banks to borrowers. Till March 31, banks used base rate as the benchmark to lend, but from April 1, MCLR was the new benchmark for new borrowers.
RBI had said, "Apart from helping improve the transmission of policy rates into the lending rates of banks, these measures are expected to improve transparency in the methodology followed by banks for determining interest rates on advances".
RBI had asked banks to move to the new lending rate regime to ensure they pass on the benefits of RBI's rate cuts to their customers at a faster pace.
Scheme for Sustainable Structuring of Stressed Assets (S4A): Last week, on June 13, in order to further strengthen the lenders’ ability to deal with stressed assets and to put real assets back on track by providing an avenue for reworking the financial structure of entities facing genuine difficulties, RBI issued guidelines on a ‘Scheme for Sustainable Structuring of Stressed Assets’.
RBI in a press release mentioned that the S4A envisages determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments which are expected to provide upside to the lenders when the borrower turns around.
In order to make sure that that the entire exercise is carried out in a transparent and prudent manner, S4A envisages that the resolution plan will be prepared by credible professional agencies, while an Overseeing Committee, set up by the Indian Banks Association, in consultation with the RBI, comprising of eminent experts will independently review the processes involved in preparation of the resolution plan, under the S4A, for reasonableness and adherence to the provisions of these guidelines, and opine on it.
Easier norms for banks to clean up balance sheets: Earlier this week, RBI relaxed guidelines for lenders restructuring large stressed loans, in a move that could allow banks to more effectively manage bad loans.
According to a Reuters report, Indian banks are grappling with about $120 billion in stressed loans, or 11.5% of the total.
The RBI said the eased restrictions will only be on loans of over 5 billion Indian rupees ($74 million) from a single bank or a syndicate, and in only those instances where a borrower has its project already in commercial operation.