How Reserve Bank of India works

how reserve bank of india functions and how many branches reserve bank of india and how to prepare for reserve bank of india exam
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Published Date:17-07-2017
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1 Overview The origins of the Reserve Bank of India can be traced to 1926, when the Royal Commission on Indian Currency and Finance – also known as the Hilton-Young Commission – recommended the creation of a central bank for India to separate the control of currency and credit from the Government and to augment banking facilities throughout the country. The Reserve Bank of India Act of 1934 established the Reserve Bank and set in motion a series of actions culminating in the start of operations in 1935. Since then, the Reserve Bank’s role and functions have undergone numerous changes, as the nature of the Indian economy and financial sector changed. 7Origins of the Reserve Bank of India  1926: The Royal Commission on Indian Currency and Finance recommended creation of a central bank for India.  1927: A bill to give effect to the above recommendation was introduced in the Legislative Assembly, but was later withdrawn due to lack of agreement among various sections of people.  1933: The White Paper on Indian Constitutional Reforms recommended the creation of a Reserve Bank. A fresh bill was introduced in the Legislative Assembly.  1934: The Bill was passed and received the Governor General’s assent  1935: The Reserve Bank commenced operations as India’s central bank on April 1 as a private shareholders’ bank with a paid up capital of rupees five crore (rupees fifty million).  1942: The Reserve Bank ceased to be the currency issuing authority of Burma (now Myanmar).  1947: The Reserve Bank stopped acting as banker to the Government of Burma.  1948: The Reserve Bank stopped rendering central banking services to Pakistan.  1949: The Government of India nationalised the Reserve Bank under the Reserve Bank (Transfer of Public Ownership) Act, 1948. Starting as a private shareholders’ bank, the Reserve Bank was nationalised in 1949. It then assumed the responsibility to meet the aspirations of a newly independent country and its people. The Reserve Bank’s nationalisation aimed at achieving coordination between the policies of the government and those of the central bank. Functions of the Reserve Bank The functions of the Reserve Bank today can be categorised as follows:  Monetary policy  Regulation and supervision of the banking and non-banking financial institutions, including credit information companies  Regulation of money, forex and government securities markets as also certain financial derivatives  Debt and cash management for Central and State Governments  Management of foreign exchange reserves  Foreign exchange management—current and capital account management 8 Box 2 Box 1 Banker to banks  Banker to the Central and State Governments  Oversight of the payment and settlement systems  Currency management  Developmental role  Research and statistics Continuity with Change The Preamble to the Reserve Bank of India Act, 1934 (the Act), under which it was constituted, specifies its objective as “to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage”. The objectives outlined in the Preamble hold good even after 75 years. As evident from the multifaceted functions that the Reserve Bank performs today, its role and priorities have, in the span of 75 years, changed in tandem with changing national priorities and global developments. Essentially, the Reserve Bank has demonstrated dynamism and flexibility to meet the requirements of an evolving economy. A core function of the Reserve Bank in the last 75 years has been the formulation and implementation of monetary policy with the objectives of maintaining price stability and ensuring adequate flow of credit to productive sectors of the economy. To these was added, in more recent times, the goal of maintaining financial stability. The objective of maintaining financial stability has spanned its role from external account management to oversight of banks and non-banking financial institutions as also of money, government securities and foreign exchange markets. The Reserve Bank designs and implements the regulatory policy framework for banking and non-banking financial institutions with the aim of providing people access to the banking system, protecting depositors’ interest, and maintaining the overall health of the financial system. Its function of regulating the commercial banking sector, which emerged with the enactment of the Banking Regulation Act, 1949, has over time, expanded to cover other entities. Thus, amendments to the Banking Regulation Act, 1949 brought cooperative banks and regional rural banks under the Reserve Bank’s jurisdiction, while amendments to the Reserve Bank of India Act saw development finance institutions, non-banking financial companies 9and primary dealers coming under its regulation, as these entities became important players in the financial system and markets. Similarly, the global economic uncertainties during and after the Second World War warranted conservation of scarce foreign exchange reserves by sovereign intervention and allocation. Initially, the Reserve Bank carried out the regulation of foreign exchange transactions under the Defence of India Rules, 1939 and later, under the Foreign Exchange Regulation Act of 1947. Over the years, as the economy matured, the role shifted from foreign exchange regulation to foreign exchange management. Post-independence, as the emerging nation tried to meet the aspirations of a large and diversified populace, the Reserve Bank, with its experience and expertise, was entrusted with a variety of developmental roles, particularly in the field of credit delivery. With the onset of economic planning in 1950-51, the Reserve Bank undertook a variety of developmental functions to encourage savings and capital formation and widen and deepen the agricultural and industrial credit set-up. Institution building was a significant aspect of its role in the sixties and the seventies. The strategy for nearly four decades placed emphasis on the state-induced or state-supported developmental efforts. Subsequently, the role of the financial sector and financial markets was also given an explicit recognition in the development strategy. The aftermath of the 1991 balance of payments and foreign exchange crisis saw a paradigm shift in India’s economic and financial policies. The approach under the reform era included a thrust towards liberalisation, privatisation, globalisation and concerted efforts at strengthening the existing and emerging institutions and market participants. The Reserve Bank adopted international best practices in areas, such as, prudential regulation, banking technology, variety of monetary policy instruments, external sector management and currency management to make the new policy framework effective. The rapid pace of growth achieved by the financial system in the deregulated regime necessitated a deepening and widening of access to banking services. The new millennium has seen the Reserve Bank play an active role in balancing the relationship between banks and customers; focusing on financial inclusion; setting up administrative machinery to handle customer grievances; pursuing clean note policy and ensuring development and oversight of secure and robust payment and settlement systems. 10The last one-and-a-half decades have also seen growing integration of the national economy and financial system with the globalising world. While rising global integration has its advantages in terms of expanding the scope and scale of growth of the Indian economy, it also exposes India to global shocks. Hence, maintaining financial stability became an important mandate for the Reserve Bank. This, in turn, has brought forth the need for effective coordination and consultation with other regulators within the country and abroad. The following chapters provide more details on the primary functions of the Reserve Bank.  112 Organisation Central Board of Directors Governor Deputy Governors Executive Directors Principal Chief General Manager Chief General Managers General Managers Deputy General Managers Assistant General Managers Managers Assistant Managers Support Staff 12Central Board of Directors The Central Board of Directors is at the top of the Reserve Bank’s organisational structure. Appointed by the Government under the provisions of the Reserve Bank of India Act, 1934, the Central Board has the primary authority and responsibility for the oversight of the Reserve Bank. It delegates specific functions to the Local Boards and various committees. The Governor is the Reserve Bank’s chief executive. The Governor supervises and directs the affairs and business of the RBI. The management team also includes Deputy Governors and Executive Directors. The Central Government nominates fourteen Directors on the Central Board, including one Director each from the four Local Boards. The other ten Directors represent different sectors of the economy, such as, agriculture, industry, trade, and professions. All these appointments are made for a period of four years. The Government also nominates one Government official as a Director representing the Government, who is usually the Finance Secretary to the Government of India and remains on the Board ‘during the pleasure of the Central Government’. The Reserve Bank Governor and a maximum of four Deputy Governors are also ex officio Directors on the Central Board. Local Boards The Reserve Bank also has four Local Boards, constituted by the Central Government under the RBI Act, one each for the Western, Eastern, Northern and Southern areas of the country, which are located in Mumbai, Kolkata, New Delhi and Chennai. Each of these Boards has five members appointed by the Central Government for a term of four years. These Boards represent territorial and economic interests of their respective areas, and advise the Central Board on matters, such as, issues relating to local cooperative and indigenous banks. They also perform other functions that the Central Board may delegate to them. Offices and Branches The Reserve Bank has a network of offices and branches through which it discharges its responsibilities. The units operating in the four metros — Mumbai, Kolkata, Delhi and Chennai — are known as offices, while the units located at other cities and towns are called branches. Currently, the Reserve Bank has its offices, including branches, at 27 locations in India. The offices and larger branches are headed by a senior officer in the rank of Chief General Manager, designated as Regional Director while smaller branches are headed by a senior officer in the rank of General Manager. 13Central Office Departments Markets Department of External Investments and Operations Financial Markets Department Financial Stability Unit Internal Debt Management Department Monetary Policy Department Regulation Department of Banking Operations and Development and Supervision Department of Banking Supervision Department of Non-Banking Supervision Foreign Exchange Department Rural Planning and Credit Department Urban Banks Department Research Department of Economic Analysis and Policy Department of Statistics and Information Management Services Customer Service Department Department of Currency Management Department of Government and Bank Accounts Department of Payment and Settlement Systems Support Department of Administration and Personnel Management Department of Communication Department of Expenditure and Budgetary Control Department of Information Technology Human Resources Development Department Inspection Department Legal Department Premises Department Rajbhasha Department Secretary’s Department 15 Box 3The Central Board has primary authority for the oversight of RBI. It delegates specific functions through it’s committees, boards and sub-committees. Board for Financial Supervision (BFS) In terms of the regulations formulated by the Central Board under Section 58 of the RBI Act, the Board for Financial Supervision (BFS) was constituted in November 1994, as a committee of the Central Board, to undertake integrated supervision of different sectors of the financial system. Entities in this sector include banks, financial institutions and non-banking financial companies (including Primary Dealers). The Reserve Bank Governor is the Chairman of the BFS and the Deputy Governors are the ex officio members. One Deputy Governor, usually the Deputy Governor in-charge of banking regulation and supervision, is nominated as the Vice-Chairperson and four directors from the Reserve Bank’s Central Board are nominated as members of the Board by the Governor. The Board is required to meet normally once a month. It deliberates on various regulatory and supervisory policy issues, including the findings of on-site supervision and off-site surveillance carried out by the supervisory departments of the Reserve Bank and gives directions for policy formulation. The Board thus plays a critical role in the effective discharge of the Reserve Bank’s regulatory and supervisory responsibilities. Audit Sub-Committee The BFS has constituted an Audit Sub-Committee under the BFS Regulations to assist the Board in improving the quality of the statutory audit and internal audit in banks and financial institutions. The Deputy Governor in charge of regulation and supervision heads the sub-committee and two Directors of the Central Board are its members. Board for Regulation and Supervision of Payment and Settlement Systems (BPSS) The Board for Regulation and Supervision of Payment and Settlement Systems provides an oversight and direction for policy initiatives on payment and settlement systems within the country. The Reserve Bank Governor is the Chairman of the BPSS, while two Deputy Governors, three Directors of the Central Board and some permanent invitees with domain expertise are its members. The BPSS lays down policies for regulation and supervision of payment and settlement systems, sets standards for existing and future systems, authorises such systems, and lays down criteria for their membership. 16Subsidiaries of the RBI The Reserve Bank has the following fully - owned subsidiaries: Deposit Insurance and Credit Guarantee Corporation (DICGC) With a view to integrating the functions of deposit insurance and credit guarantee, the Deposit Insurance Corporation and Credit Guarantee Corporation of India were merged and the present Deposit Insurance and Credit Guarantee Corporation (DICGC) came into existence on July 15, 1978. Deposit Insurance and Credit Guarantee Corporation (DICGC), established under the DICGC Act 1961, is one of the wholly owned subsidiaries of the Reserve Bank. The DICGC insures all deposits (such as savings, fixed, current, and recurring deposits) with eligible banks except the following: (i) Deposits of foreign Governments; (ii) Deposits of Central/State Governments; (iii) Inter-bank deposits; (iv) Deposits of the State Land Development Banks with the State co- operative bank; (v) Any amount due on account of any deposit received outside India; (vi) Any amount, which has been specifically exempted by the corporation with the previous approval of Reserve Bank of India. Every eligible bank depositor is insured upto a maximum of Rs.1,00,000 (Rupees One Lakh) for both principal and interest amount held by him. National Housing Bank (NHB) National Housing Bank was set up on July 9, 1988 under the National Housing Bank Act, 1987 as a wholly-owned subsidiary of the Reserve Bank to act as an apex level institution for housing. NHB has been established to achieve, among other things, the following objectives:  To promote a sound, healthy, viable and cost effective housing finance system to all segments of the population and to integrate the housing finance system with the overall financial system.  To promote a network of dedicated housing finance institutions to adequately serve various regions and different income groups.  To augment resources for the sector and channelise them for housing.  To make housing credit more affordable.  To regulate the activities of housing finance companies based on regulatory and supervisory authority derived under the Act.  To encourage augmentation of supply of buildable land and also building materials for housing and to upgrade the housing stock in the country.  To encourage public agencies to emerge as facilitators and suppliers of serviced land for housing. 17Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL) The Reserve Bank established BRBNMPL in February 1995 as a wholly-owned subsidiary to augment the production of bank notes in India and to enable bridging of the gap between supply and demand for bank notes in the country. The BRBNMPL has been registered as a Public Limited Company under the Companies Act, 1956 with its Registered and Corporate Office situated at Bengaluru. The company manages two Presses, one at Mysore in Karnataka and the other at Salboni in West Bengal. National Bank for Agriculture and Rural Development (NABARD) National Bank of Agriculture and Rural Development (NABARD) is one of the subsidiaries where the majority stake is held by the Reserve Bank. NABARD is an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas. Staff Strength As of June 30, 2009, the Reserve Bank had a total staff strength of 20,572. Nearly 46% of the employees were in the officer grade, 19% in the clerical cadre and the remaining 35% were sub staff. While 17,351 staff members were attached to Regional Offices, 3,221 were attached to various Central Office departments. Training and Development The Reserve Bank attaches utmost importance to the development of human capital and skill upgradation in the Indian financial sector. For this purpose, it has, since long, put in place several institutional measures for ongoing training and development of the staff of the banking industry as well as its own staff. Training Establishments The Reserve Bank currently has two training colleges and four zonal training centres and is also setting up an advanced learning centre. The Reserve Bank Staff College (originally known as Staff Training College), set up in Chennai in 1963, offers residential training programmes, primarily to its junior and middle-level officers as well as to officers of other central banks, in various areas. The programmes offered can be placed in four broad categories: Broad Spectrum, Functional, Information Technology and Human Resources Management. 18The College of Agricultural Banking set up in Pune in 1969, focuses on training the senior and middle level officers of rural and co-operative credit sectors. In recent years, it has diversified and expanded the training coverage into areas relating to non-banking financial companies, human resource management and information technology. Both these colleges together conduct nearly 300 training programmes every year, imparting training to over 7,500 staff. The Reserve Bank is also in the process of setting up the Centre for Advanced Financial Learning (CAFL) replacing the Bankers’ Training College, Mumbai. In addition, the Reserve Bank also has four Zonal Training Centres (ZTCs), in Chennai, Kolkata, Mumbai (Belapur) and New Delhi, primarily for training its clerical and sub-staff. However, of late, the facilities at the ZTCs are also being leveraged for training the junior officers of the Reserve Bank. Academic Institutions The Reserve Bank has also set up autonomous institutions, such as, National Institute of Bank Management (NIBM), Pune; Indira Gandhi Institute for Development Research (IGIDR), Mumbai; and the Institute for Development and Research in Banking Technology (IDRBT), Hyderabad. National Institute of Bank Management (NIBM) was established as an autonomous apex institution with a mandate of playing a pro-active role of a ‘think-tank’ of the banking system. The Institute is engaged in research (policy and operations), education and training of senior bankers and development finance administrators, and consultancy to the banking and financial sectors. Publication of books and journals is also integral to its objectives. International Monetary Fund (IMF), in collaboration with Australian Government Overseas Aid Programme (AUS-AID) and the Reserve Bank, has set-up its seventh international centre, the Joint India-IMF Training Programme (ITP) in NIBM for South Asia and Eastern Africa regions. The Indira Gandhi Institute of Development Research (IGIDR) is an advanced research institute for carrying out research on development issues. Starting as a purely research institution, it quickly grew into a full-fledged teaching cum research organisation when in 1990 it launched a Ph.D. programme in the field of development studies. The objective of the Ph.D. programme is to produce analysts with diverse disciplinary background who can address issues of economics, energy and environment policies. In 1995 an M. Phil programme was also started. The institute is fully funded by the Reserve Bank. 19IDRBT was established in 1996 as an Autonomous Centre for Development and Research in Banking Technology. The research and development activities of the Institute are aimed at improving banking technology in the country. While addressing the immediate concerns of the banking sector, research at the Institute is focused towards anticipating the future needs and requirements of the sector and developing technologies to address them. The current focal areas of research in the Institute are: Financial Networks and Applications, Electronic Payments and Settlement Systems, Security Technologies for the Financial Sector, Technology Based Education, Training and Development, Financial Information Systems and Business Intelligence. The Institute is also actively involved in the development of various standards and systems for banking technology, in coordination with the Reserve Bank of India, Indian Banks’ Association, Ministry of Communication and Information Technology, Government of India, and the various high-level committees constituted at the industry and national levels.  203 Monetary Management One of the most important functions of central banks is formulation and execution of monetary policy. In the Indian context, the basic functions of the Reserve Bank of India as enunciated in the Preamble to the RBI Act, 1934 are: “to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.” Thus, the Reserve Bank’s mandate for monetary policy flows from its monetary stability objective. Essentially, monetary policy deals with the use of various policy instruments for influencing the cost and availability of money in the economy. As macroeconomic conditions change, a central bank may change the choice of instruments in its monetary policy. The overall goal is to promote economic growth and ensure price stability. 21Monetary Policy in India Over time, the objectives of monetary policy in India have evolved to include maintaining price stability, ensuring adequate flow of credit to productive sectors of the economy for supporting economic growth, and achieving n fi ancial stability. Based on its assessment of macroeconomic and financial conditions, the Reserve Bank takes the call on the stance of monetary policy and monetary measures. Its monetary policy statements reflect the changing circumstances and priorities of the Reserve Bank and the thrust of policy measures for the future. Faced with multiple tasks and a complex mandate, the Reserve Bank emphasises clear and structured communication for effective functioning of the monetary policy. Improving transparency in its decisions and actions is a constant endeavour at the Reserve Bank. The Governor of the Reserve Bank announces the Monetary Policy in April every year for the financial year that ends in the following March. This is followed by three quarterly reviews in July, October and January. However, depending on the evolving situation, the Reserve Bank may announce monetary measures at any point of time. The Monetary Policy in April and its Second Quarter Review in October consist of two parts: Part A provides a review of the macroeconomic and monetary developments and sets the stance of the monetary policy and the monetary measures. Part B provides a synopsis of the action taken and the status of past policy announcements together with fresh policy measures. It also deals with important topics, such as, financial stability, financial markets, interest rates, credit delivery, regulatory norms, financial inclusion and institutional developments. However, the First Quarter Review in July and the Third Quarter Review in January consist of only Part ‘A’. Monetary Policy Framework The monetary policy framework in India, as it is today, has evolved over the years. The success of monetary policy depends on many factors. 22Operating Target There was a time when the Reserve Bank used broad money (M ) as the policy 3 target. However, with the weakened relationship between money, output and prices, it replaced M as a policy target with a multiple indicators approach. 3 As the name suggests, the multiple indicators approach looks at a large number of indicators from which policy perspectives are derived. Interest rates or rates of return in different segments of the financial markets along with data on currency, credit, trade, capital flows, fiscal position, inflation, exchange rate, and such other indicators, are juxtaposed with the output data to assess the underlying trends in different sectors. Such an approach provides considerable flexibility to the Reserve Bank to respond more effectively to changes in domestic and international economic environment and financial market conditions. Monetary Policy Instruments The Reserve Bank traditionally relied on direct instruments of monetary control such as Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). Cash Reserve Ratio indicates the quantum of cash that banks are required to keep with the Reserve Bank as a proportion of their net demand and time liabilities. SLR prescribes the amount of money that banks must invest in securities issued by the government. In the late 1990s, the Reserve Bank restructured its operating framework for monetary policy to rely more on indirect instruments such as Open Market Operations (OMOs). In addition, in the early 2000s, the Reserve Bank instituted Liquidity Adjustment Facility (LAF) to manage day-to-day liquidity in the banking system. These facilities enable injection or absorption of liquidity that is consistent with the prevailing monetary policy stance. The repo rate (at which liquidity is injected) and reverse repo rate (at which liquidity is absorbed) under the LAF have emerged as the main instruments for the Reserve Bank’s interest rate signalling in the Indian economy. The armour of instruments with the Reserve Bank to manage liquidity was strengthened in April 2004 with the Market Stabilisation Scheme (MSS). The MSS was specifically introduced to manage excess liquidity arising out of huge capital flows coming to India from abroad. In addition, the Reserve Bank also uses prudential tools to modulate the flow of credit to certain sectors so as to ensure financial stability. The availability of multiple instruments and their flexible use in the implementation of monetary policy have enabled the Reserve Bank to successfully inu fl ence the liquidity and interest rate conditions in the economy. While the Reserve Bank prefers 23indirect instruments of monetary policy, it has not hesitated in taking recourse to direct instruments if circumstances warrant such actions. Often, complex situations require varied combination of direct and indirect instruments to make the policy transmission effective. The recent legislative amendments to the Reserve Bank of India Act, 1934 enable a flexible use of CRR for monetary management, without being constrained by a statutory floor or ceiling on the level of the CRR. The amendments to the Banking Regulation Act, 1949 also provide further flexibility in liquidity management by enabling the Reserve Bank to lower the SLR to levels below the pre-amendment statutory minimum of 25 per cent of net demand and time liabilities (NDTL) of banks. Monetary Policy Transmission An important factor that determines the effectiveness of monetary policy is its transmission – a process through which changes in the policy achieve the objectives of controlling inflation and achieving growth. In the implementation of monetary policy, a number of transmission channels have been identified for influencing real sector activity. These are (a) the quantum channel relating to money supply and credit; (b) the interest rate channel; (c) the exchange rate channel; and (d) the asset price channel. How these channels function in an economy depends on its stage of development and its underlying financial structure. For example, in an open economy one would expect the exchange rate channel to be important; similarly, in an economy where banks are the major source of finance as against the capital market, credit channel could be a major conduit for monetary transmission. Of course, these channels are not mutually exclusive, and there could be considerable feedback and interaction among them. Institutional Mechanism for Monetary Policy-making The Reserve Bank has made internal institutional arrangements for guiding the process of monetary policy formulation. 24 Box 4Financial Markets Committee (FMC) Constituted in 1997, the inter-departmental Financial Markets Committee is chaired by the Deputy Governor in-charge of monetary policy formulation. Heads of various departments dealing with markets, and the head of the Monetary Policy Department (MPD) are its members. They meet every morning and review developments in money, foreign exchange and government securities markets. The FMC also makes an assessment of liquidity conditions and suggests appropriate market interventions on a day-to-day basis. Monetary Policy Strategy Group The Monetary Policy Strategy Group is headed by the Deputy Governor in- charge of MPD. The group comprises Executive Directors (EDs) in-charge of different markets departments and heads of other departments. It generally meets twice in a quarter to review monetary and credit conditions and takes a view on the stance of the monetary policy. Technical Advisory Committee (TAC) on Monetary Policy The Reserve Bank had constituted a Technical Advisory Committee (TAC) on Monetary Policy in July 2005 with a view to strengthening the consultative process in the conduct of monetary policy. This TAC reviews macroeconomic and monetary developments and advises the Reserve Bank on the stance of the monetary policy and monetary measures that may be undertaken in the ensuing policy reviews. The Committee has, as its members, five external experts and two Directors from the Reserve Bank’s Central Board. The external experts are chosen from the areas of monetary economics, central banking, financial markets and public finance. The Committee is chaired by the Governor, with the Deputy Governor in- charge of monetary policy as the vice-chairman. The other Deputy Governors of the Reserve Bank are also members of this Committee. The TAC normally meets once in a quarter, although a meeting could be convened at any other time, if necessary. The role of the TAC is advisory in nature. The responsibility, accountability and time path of the decision making remains entirely with the Reserve Bank. Pre-Policy Consultation Meetings The Reserve Bank aims to make the policy making process consultative, reaching out to a variety of stakeholders and experts ahead of each Monetary Policy and quarterly Review. 25From October 2005, the Reserve Bank has introduced pre-policy consultation meetings with the Indian Banks’ Association (IBA), market participants, representatives of trade and industry, credit rating agencies and other institutions, such as, urban co-operative banks, micro-finance institutions, small and medium enterprises, non-banking finance companies, rural co- operatives and regional rural banks. In order to further improve monetary policy communication, the Governor also meets economists, journalists and media analysts. These meetings focus on macroeconomic developments, liquidity position, interest rate environment and monetary and credit developments. This consultative process contributes to enriching the policy formulation process and enhances the effectiveness of monetary policy measures. Resource Management Discussions The Reserve Bank holds Resource Management Discussions (RMD) meetings with select banks about one and a half months prior to the announcement of the Monetary Policy and the Second Quarter Review. These discussions are chaired by the Deputy Governor in-charge of monetary policy formulation. These meetings mainly focus on perception and outlook of bankers on the economy, liquidity conditions, credit outflows, developments in different market segments and the direction of interest rates. Bankers offer their suggestions for the policy. The feedback received from these meetings is analysed and taken as inputs while formulating monetary policy.  26

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