CHAP 16-FUNDING
AND REGULATORY ASPECTS
·
The Reserve Bank of India is the Note Issuing Authority.
·
The money in circulation is indicated by 'Broad Money' or M3, which
includes currency in circulation, demand and time deposits with banks and post
office saving deposits.
·
Cash reserve ratio (CRR) is
intended to reduce the multiplier effect.
·
CRR and SLR are important instruments in the hands of RBI to control
liquidity in the inter-bank market. The liquidity in turn impacts overall money
supply, inflation, interest rates and exchange rates.
·
Reserve assets refer to the cash deposited by scheduled commercial
banks with RBI to comply with Cash Reserve Ratio (CRR) requirement. The reserve
ratios are calculated on the basis of demand and time liabilities (DTL) of the
banks.
·
Exemptions from DTL are the “Transactions in CBLO and CCIL”
·
Funds invested in Government securities and other approved
securities to comply with the Statutory Liquidity Ratio (SLR) requirement.
·
Liquidity refers to surplus funds available with banks, which is an
indicator of money supply that has not been absorbed by the real economy.
·
Treasury back-office should report relevant information to RBI in
the fortnightly return (Form A).
·
The CRR is to be calculated on the basis of DTL, with a lag of one
fortnight, i.e. on the reporting Friday, the DTL as at the end of previous
fortnight will form the basis for CRR calculation.
·
An increase in the reserve ratios will reduce money supply (excess
liquidity) and reduction in the reserve ratios will increase the money supply.
·
LIQUIDITY ADJUSTMENT FACILITY (LAF) is used to monitor day-to-day
liquidity in the market.
·
LAF refers to RBI lending funds to banking sector through Repo
instrument. RBI also accepts deposits from banks under Reverse Repo.
·
Real Time Gross Settlement System (RTGS) has been fully activated by
RBI from October 2004.
·
RTGS is a paperless clearing system, where settlements are on gross
basis.
·
The Institute for Development and Research in Banking Technology
(IDRBT) has developed the Indian Financial Net Work (INFINET) as a secure
communication backbone for the banking and financial sectors.
·
The INFINET has helped introduction of Structured Financial
Messaging System (SFMS) which facilitates domestic transfer of funds and authenticated
messages, similar to the SWIFT used by banks for international messaging.
·
Negotiated Dealing System(February 2002) is an electronic platform
for facilitating dealing in Government securities and money market instruments.
·
CCIL a specialized institution promoted by major banks for clearing
of securities, repo trades and trades in CBLO (securities borrowing and lending
scheme).
·
FX Clear is a forex dealing system developed by CCIL for foreign
exchange transactions (USD/ INR as well as cross currencies).
·
Repo/Reverse Repo rates dictate the liquidity parameters.
·
NSDL and CSDL facilitate delivery Vs payment(DVP) for secondary
market deals in equity and debt paper.
·
CCIL as an intermediary settles inter-bank USD/Rupee deals on net
basis, so that individual banks need not exchange payments for each transaction.
