Editorials/Opinions Analyses for UPSC – 7 May 2021

Contents

1. A lending hand by the RBI

A lending hand by the RBI

Context:

Various measures aimed at alleviating any financing constraint for those impacted, including the health-care sector, State governments and the public were announced by the Reserve Bank of India (RBI) to fight against the second wave of the pandemic.

Relevance:

GS-III: Indian Economy (Economic Growth and Development, Planning usage and Mobilisation of resources, Inclusive growth and issues therein)

Dimensions of the Article:

1. About the Reserve Bank of India (RBI)
2. Functions of Reserve Bank of India
3. About RBI’s support through the second wave of Covid-19

About the Reserve Bank of India (RBI)

• The Reserve Bank of India was established in accordance with the provisions of the Reserve Bank of India Act, 1934. Hence, the RBI is a Statutory Body.
• The Reserve Bank is fully owned by the Government of India now, since nationalization in 1949. (Originally it was private owned).
• The Reserve Bank’s affairs are governed by a central board of directors. The board is appointed/nominated for a period of four years by the Government of India, based on the Reserve Bank of India Act.
• The RBI has both Official Directors and Non-Official Directors. Official Directors (central board of directors) are the Governor along with not more than four Deputy Governors. Ten Directors from various fields and two Government Officials along with four Directors – one each from four local boards (regional) are the Non-Official Directors.

Functions of Reserve Bank of India

Monetary

1. Implementation of monetary policies.
2. Monitoring the monetary policies
3. Ensuring price stability in the country considering the economic growth of the country

Regulatory

1. The RBI determines the comprehensive parameters of banking operations.
2. These methods are responsible for the functioning of the country’s banking and financial system. Methods such as:

1. License issuing
2. Liquidity of assets
3. Bank mergers
4. Branch expansion, etc.

Foreign Exchange

1. RBI manages the FOREX Reserves of India.
2. It is responsible for maintaining the value of the Rupee outside the country.
3. It aids foreign trade payment.

Currency

1. The Reserve Bank of India is responsible for providing the public with a sufficient supply of currency notes and coins.
2. The quality of currency notes and coins is also taken care of by the RBI.
3. RBI is in charge of issuing and exchanging of currency and coins.
4. Also, the destruction of currency and coins that are not fit for circulation.

Developmental role

1. Promotional functions that support national objectives are organized by RBI that encourage rural and agricultural economic development.
2. The RBI will regularly issue directives to the commercial banks to lend loans to small-scale industrial units.

About RBI’s support through the second wave of Covid-19

• RBI proposed a calibrated response, mooting a Rs. 50,000 crore term liquidity facility to boost credit availability for ramping up COVID-related health-care infrastructure and services.
• RBI urged lenders to expedite lending under this ‘priority sector’ classified scheme to entities including vaccine manufacturers, hospitals, pathology labs, suppliers of oxygen and ventilators, importers of COVID-related drugs and logistics firms. This scheme would also cover patients requiring treatment, but it remains unclear to those with surging medical facilities will be able avail the facility.
• The RBI has signalled that it is cognisant of the burden on health-care and allied providers by directing the flow of credit to the sector most in focus at the moment.
• RBI’s focus on small borrowers including unorganised businesses and MSM enterprises, both through enhanced provision of credit via small finance banks and a fresh resolution framework for existing borrowings, is welcoming. (However, only those borrowers who had not already availed of restructuring assistance and whose loans were ‘standard’ as on March 31, 2021, would be eligible for fresh resolution lays an onerous burden on those that the RBI itself admits are the ‘most vulnerable’.)

-Source: The Hindu