India Banking System Essay

1781 words - 7 pages

India Banking SystemTerm PaperAn overview of Indian Financial SystemThe Indian financial system does not have an overarching regulator. Instead, it is regulated by several independent regulators in the sectors of banking, insurance, capital market and various service sectors. Reserve Bank of India (RBI), established in 1935 under the Reserve Bank of India Act, is the central bank that regulates Indian banking system. Insurance Development and Regulatory Authority (IDRA), established under the 1999 Insurance Development and Regulatory Authority Act, is the regulatory body of Indian insurance companies. Security and Exchange Board of India (SEBI), which was established under the SEBI Act in 1992, is the regulator of Indian capital market. In addition, Ministry of Finance, Government of India is the administration that takes charge of overall Indian financial system. The ministry is also responsible for proposing and executing annual budget, tax policies and other government policies for Indian financial sector.Indian Banking SystemScheduled Banking StructureThe chart above demonstrates the basic banking structure of India. Banks in India could be roughly divided into scheduled banks and unscheduled banks. Scheduled banks "constitute those banks, which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI includes only those banks in this schedule, which satisfy the criteria laid down vide section 42 (6) (a) of the Act".The Reserve Bank of India is the central bank of India that regulates the scheduled banking sector. Under the administration of central bank are scheduled commercial banks, scheduled co-operative banks and some non-banking financial institutions.Indian Central Bank: Reserve Bank of IndiaHistoryThe Reserve Bank of India was established in April, 1935 under the provision of the Reserve Bank of India Act, 1934. It was nationalized in the year 1949 and has since then become a fully government owned bank.. The Reserve Bank of India has assumed its role as regulator of the financial and banking sector of India since its initiation, under the 1934 Reserve Bank of India Act and 1949 Banking Regulation Act. Major functionsRBI announces its major functions as follows.Monetary AuthorityThe central bank of India is responsible for setting and implementing monetary policy to maintain price stability and proper interest rate.Regulator and supervisor of the financial systemThe central bank of India also takes charge of "prescribing broad parameters of banking operations within which the country's banking and financial system functions" with the objective to "maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public. "Manager of Foreign ExchangeThe central bank manages Indian's Foreign Exchange. India currently maintains a "managed" or "dirty" float regime where the currency value is supposedly determined by the market but government would often...

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