Various concept related to Central Banking Policy
Various Rate or Ratio (April 2010) | Rate (%) |
Bank Rate | 6.00 |
Repo Rate | 5.25 |
Reserve Repo Rate | 3.75 |
Cash Reserve Ratio (CRR) | 6.00 |
Statutory Liquid Ratio (SLR) | 25.00 |
- Legal Reserve Ratio :Commercial banks receive deposits from the public. The banks use the money in these deposits to give loans. These functions of the commercial banking system are the basis of deposit creation. How much are the deposits created is determined by the amount of initial deposits by the public and the Legal Reserve Ratio. The quantitative outcome is called money multiplies. This money creation is also called ‘deposit creation’ or ‘credit creation’. It is legally compulsory for the banks to keep a certain minimum fraction of these deposits as cash. The fraction is called the Legal Reserve Ratio(LRR). The LRR is fixed by the central bank. It has two components. Cash Reserve Ratio(CRR) and Statutory Liquidity Ratio ( SLR)
- Cash Reserve Ratio (CRR): A part of the LRR is to be kept with the Central bank and this part ratio is called the Cash Reserve Ratio (CRR).
- Statutory Liquidity Ratio ( SLR): The other part is kept by the banks themselves and is called the Statutory Liquidity Ratio ( SLR).
- Bank rate: Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the money supply. The rate at which central banks lend funds to national banks. A central bank adjusts the supply of currency within national borders by adjusting the bank rate. When the central bank reduces the bank rate, it increases the attractiveness for commercial banks to borrow, thus increasing the money supply. When the central bank increases the bank rate, it decreases the attractiveness for commercial banks to borrow, consequently decreasing the money supply.
- Repo Rate: When the banks have any shortage of funds they can borrow it either from Reserve Bank of
- Reverse Repo rate : Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system. Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse Repo rate our banks adjust their lending or investment rates for common man.
Nowadays India
The first decade and a half of economic reforms had led to a situation of jobless growth and increasing disparities. The public at large reacted sharply to this lopsided, exclusive model of development and the government was forced to introduce various policies to ensure social justice. People gave the green signal to this renewed interest in social spending and the incumbent government was voted back to power in 2009.
It is to be noted that this new “inclusive model” of development does not reject the objective of achieving high economic growth. In fact, it considers economic growth as one of the most important parameters without compromising the wider goals of social justice and environmental protection. The sustainable development is emerging in India
At the micro level, the dialectical process of development in India
The people have rejected the zero-sum thesis and the focus has suddenly shifted to rehabilitation. The Central government came up with a comprehensive Rehabilitation and Resettlement (R&R) Policy. But the success of industrialisation of rural India
The industrialisation experience in the state of West Bengal can be a valuable case study model, especially in the context of the series of electoral defeats to the ruling party. It is said that the worst time for a government is when it has initiated some reforms and has gone half-way.
The corporate sector has demanded a drastic reduction in fiscal deficit and the recent budget aims at fiscal consolidation. At the micro-level, the focus should be on evolving innovative ways of rehabilitation, prompt compensation and timely implementation. Indian Union Budget 2010-2011 a glance
• The major impact of this budget among the all section of the people is coming through the revival of the central custom duty of 5 percent on crude oil and 10 percent on petroleum product. This leads to an increase in price of petroleum product. This would further fuel in inflation.
• The budget proposed a disinvestment of public sector share
• The neglected area are Public Distribution System, Food Security and Inflation control
• Income Tax payers have gained a relief from the changes in slab and deduction in additional amount of Rs. 20,000 on tax saving for investment in long term infrastructural bonds.
• Introduction of Saral II for tax payer
• Much focus on infrastructure development
• Rural India
• Allocation for Urban development increases
• At last Union Budget are going to understand the importance of Education for the development of an economy, plan allocation for school education increased by 16 percent.
• The new Banking Licenses are to be issued RBI and it is eligible to convert them selves into banks by non-banking finance companies
• Being a consumer state Kerala will be worst affect by some proposal such as hike in duty of petroleum product which will leads to a price rise in all commodity and services.