Analysis of RBI's Logistics and Supply Chain Management Policies

This report provides a detailed overview of the Reserve Bank of India's (RBI) logistics and supply chain management. It begins by outlining the structure of RBI, its main objectives, and its roles and responsibilities within the Indian financial system. The report delves into RBI's monetary and fiscal policies, including quantitative and qualitative tools used to control inflation and promote economic growth. It also examines foreign exchange limits set by RBI and the availability of information to the public. The effectiveness of RBI policies, particularly in relation to inflation targets, is critically assessed. Furthermore, the report discusses the functions of RBI, its role in demonetization, and its corporate social responsibility activities. The report concludes by summarizing the key findings and highlighting the importance of RBI's role in managing India's financial system.

Running head: Logistics and supply chain management
Logistics and supply chain management
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Logistics and supply chain management 1
Contents
Introduction...........................................................................................................................................2
Structure of RBI....................................................................................................................................2
Main objectives.....................................................................................................................................3
Roles and responsibility.........................................................................................................................3
Policy and procedures of RBI................................................................................................................4
Foreign exchange limits.........................................................................................................................6
Availability of information....................................................................................................................7
Are RBI Policies effective?...................................................................................................................7
Functions of RBI...................................................................................................................................8
Role of RBI in Demonetization.............................................................................................................9
Corporate social responsibility activities by RBI.................................................................................10
Conclusion...........................................................................................................................................10
References...........................................................................................................................................12

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Introduction
The Reserve Bank of India (RBI) is known as the central bank of India. It was introduced in
April 1, 1935 under the act of Reserve bank of India 1934, headquartered in Mumbai till date.
The central bank is fully controlled by the government of India. RBI was initiated with the
share capital of rupees five Crores divided into share of rupees hundred each which is fully
paid up (Reserve Bank of India, 2018).
Reserve Bank of India is controlled by the central board delegated by the central government
of India. It has total 22 regional offices in all over India. RBI is associated with India since
1949. The responsibility of directing and superintending the bank is in the hands of 20
members of board of directors, the Governor and 4 deputy Governors, one governmental
official from the ministry of finance. To represent the important elements regarding economic
life of the country, there are ten nominated directors by the government (NBD, Sudhakar,
Bhawan & Marg, 2017). The government has also nominated the four directors to represent
the four local boards which are located at Mumbai, Kolkata, Chennai and 29 New Delhi. The
central government has also appointed five members each under local board for a term of
four years to give the representation regarding territorial and economic interests and the
interests of cooperative and indigenous banks.
Structure of RBI
Reserve bank of India governs and supervises the financial system of the nation. RBI
involves several departments which regulates the several entities that contain India’s financial
infrastructure which are as follows:
Commercial banks and all- India development financial institutions: these institutions are
controlled by the Banking Operations and Development Department, delegated by the
Banking Supervision Department (India, 2015).
Urban Co-operative banks: these institutions are governed and supervised by the Urban
Banks Department
Regional Rural Banks (RRB), District Central Cooperative Banks and State Co-operative
Banks: these banks are controlled and governed by the department of Rural Planning and
Credit and delegated by NABARD.

Logistics and supply chain management 3
Non-Banking Financial Companies (NBFC): these companies are regulated and controlled by
the Non-Banking Supervision Department.
Main objectives
The essential objectives of RBI are as follows:
 Price stability and control of inflation.
 Economic growth.
 Exchange rate stability (Mukher, 2017).
Roles and responsibility
Governor of the financial system
The foremost responsibility of the RBI is to regulate the financial policy and promote the
banking facilities in the country. The central board involves four directors to tackle the
banking regulation and supervision (Exam Pariksha, 2017). It is essential for the central
board to meet once in every month. The main objective of the bank is to maintain the public
confidence in the system by protecting the funds of the depositors. It ultimately regulates the
monetary supply and also takes care of the economic indicators such as Gross domestic
product (GDP). It also has the responsibility to designs the notes and coins.
Managing foreign exchange
It is the most important responsibility of the bank to maintain the foreign exchange. Under
the act Foreign Exchange Management Act, 1999 the central bank aims at reaching the
several objectives (Exam Pariksha, 2017). The core objective of RBI is to maintain the
external trade and payment systems in order to facilitate the foreign exchange market in
India.
Issue of currency and other responsibilities
The core responsibility of RBI is to issue currency notes. It performs the function of
exchanging currency notes and coins and eradicates the same when the currency notes do not
get fit in the transmission. The money issued by them is the monetary liability of RBI. The
central bank is responsible to have back the currency with equal value of assets. The bank is
responsible for issuing notes and providing enough supply of funds.

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Detection of fake currency
The Reserve bank of India is also responsible for Detecting fake currency from the
circulation. To remove the fake currency from the circulation a website has been launched by
the RBI that is www.paisaboltahai.rbi.org.in which provides the steps of how to recognize the
fake currency.
Policy and procedures of RBI
Reserve Bank of India involves two main policies: (1) Monetary Policy and (2) Fiscal policy
which can be defined as follows:
Monetary Policy: Monetary policy can be defined as the process of controlling the supply of
money throughout the country (Amadeo, 2018). The supply of money can be controlled by
regulating the interest rates to further maintain the price stability. Monetary policy further
involves Quantitative tools and Qualitative tools.
Quantitative tools:
Bank rate: It can be defined as the rate on the basis of which central bank supply funds to the
commercial banks. The lending rates of commercial banks get affected by this rate.
Repo rate: Repo rate can be defined as the rate on the basis of which the central bank of the
country supply funds to the commercial banks in case of lack of funds.
Reverse repo rate: Reverse repo rate is the rate on the basis of which the central bank of the
country (RBI). This rate is generally used to control the supply of money in the economy.
Marginal standing facility rate: Marginal standing facility rate can be defined as the rate on
the basis of which scheduled banks can take funds against the government securities
overnight from the central bank that is RBI.
Cash reserve ratio: Cash reserve ratio can be defined as the reserve which the banks have to
maintain as a portion of net demand and time liabilities.
Statutory liquidity ratio (SLR): Statutory liquidity ratio is the standard financial term in
which the commercial banks have to maintain the reserve in the form of gold, cash and other
securities approved by RBI
SLR = percentage of total demand and time liabilities.

Logistics and supply chain management 5
Savings deposit rate: this rate can be defined as the rate on the basis of which financial
institutions pay interest on cash deposits (Adhikari, 2018).
Policy Rates
Bank Rate 6.25%
Reverse Repo Rate 5.75%
Repo Rate 6.0%
Marginal Standing facility Rate 6.25%
Cash Reserve Ratio (CRR) 4%
Statutory Liquidity Ratio (SLR) 19.5%
Base Rate 8.65% to 9.45%
Saving Deposit Rate 3.5% to 4%
Term Deposit Rate 6% to 6.75%
Qualitative tools:
Marginal Requirements on loan to value (LTV): loan to value can be defined as the ratio of
the borrowed money and the actual value of the asset. Under this RBI controls the amount
that banks lend to the consumers. For instance, a person wants to purchase a bike from the
borrowed funds and the estimated cost of the bike is Rs. 8 Lac but the person can only
acquire the loan of Rs. 6 Lac if the LTV is specified to 75%. It’s totally up to RBI; it can be
increased or decreased to restrict the inflation or deflation.
Selective credit Control: selective credit control is a measure to instruct the bank to lending
money to some particular traders of goods such as sugar and edible oil. This measure is
generally being taken to remove the speculation of goods using loan money from banks
(Sonali, 2015).
Moral Suasion: moral suasion is a measure under which the central banks convince the
commercial banks through meetings, conferences and media statements. For instance,
whenever the RBI decreases reverse repo rate, it also ask other banks to decrease their base
rate in order to control the supply of money.
Fiscal policy: It can be defined as the policy which is used to maintain the stability between
revenues and expenditures. The function of fiscal policy is to stabilize the collection of taxes
and expenditures which ultimately influence the economy (Sonali, 2015). The aggregate

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demand gets affected when the government changes the range of taxation and overall
spending. This policy helps stabilize the economy during different shifts of business cycle
(Amadeo, 2018).
The following variables get affected by the changes in the range of taxation and government
spending which are:
Savings and Investment
Aggregate demand
Income distribution
Monetary policy can be differentiated from fiscal policy in terms of dealing. Monetary policy
deals the supply of money and different rates such as repo rate, base rate and many more. On
the other hand fiscal policy deals with government spending and taxation (Surbhi, 2015).
Limitations of Monetary Policy
Alternative investment options are not employed by the people. A large number of people in
the society are lean on saving accounts, fixed deposits and public provident fund for
investment. The central bank is not the main supplier of these banks therefore economy gets a
late impact of whatever monetary action has been taken by the bank.
Foreign exchange limits
According to foreign exchange limits there are several limitations which are prescribed by
RBI under different categories of travellers which are as follows:
Travellers Before 2015 (p.a) Since July 2015 (p.a)
Leisure USD 10,000 USD 2,50,000
Business Up to USD 25,000 (to any
country other than Nepal and
Bhutan)
USD 2,50,000
Students Estimate given by an
institution abroad or USD
30,000 per academic year,
whichever is higher
USD 2,50,000
Medical USD 25,000 + if required USD 2,50,000

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approved by the doctor
Employment USD 5,000 USD 2,50,000
Emigration USD 5,000 or the amount
prescribed by the country of
emigration
USD 2,50,000
Prior to 2015, only up to USD 2000 were allowed to carry by the travellers and rest of the
amount can be carried in the form of debit cards, travellers’ cheque. Later in 2015 USD 3000
were allowed to be carried (Buyforexonline, 2016).
Availability of information
They publish their general information on the website: www.rbi.org.in which is required for
the public. The information is available on the above website such as about Reserve Bank of
India, its policies, regulations, interest rates and other general information.
The website involves full information about the bank. If we go to the website of RBI, on the
first page it has the first option called Home which has the information regarding latest
interest rates such as repo rate, base rate, exchange rate and others. If one want to know about
the latest interest rate it can be easily found on that page (Reserve Bank of India, 2018).The
latest updates regarding the bank are also available on that page. The second option is About
Us which involves the information about the functions of RBI, policies, history, museum and
sitemap. If one wants to know about the history and policies of RBI then it can be easily
found on this page called About Us. Then the other option is Press releases which involves
the information related with latest news about RBI. The next option is Publications which
involves the information regarding annual reports, weekly report, quarterly and occasional
reports. The RBI publishes each report regarding the bank here in this column.
Are RBI Policies effective?
The RBI policies are generally very effective but the latest policies are lacking in terms of
inflation (Parmar, 2018). This time RBI is concerned about its poor policies which are
lacking behind in completing the target of inflation said top RBI official. The inflation rate is
4% which should be increased or decreased by 2% (Business line, 2018). Therefore the RBI
official stated that they need to set up a meeting to discuss the weakness of the monetary
policy and the reasons behind the failures (Galí, 2015). The repo rate which is the dominant

Logistics and supply chain management 8
factor of monetary policy is the matter of concern for RBI said RBI deputy governor, Viral
Acharya in a speech. It is also added in the speech that it is very important to achieve the
stability of price (Acharya, 2018).
To achieve the effectiveness in the policies monetary transmission should work seamlessly.
Acharya said. Monetary transmission can be defined as the process by which the decisions of
the central bank are passed on through financial markets to businesses and households
(Nayak, 2017).
In order to improve the monetary transmission an internal study by RBI suggests that the
pricing system of loan should shift from internal benchmarks such as cost of funds to external
benchmarks such as bond yields Acharya said (Acharya, 2018).
Functions of RBI
RBI consists of many important functions which are as follows:
 Issue of Bank Notes: The central bank of India performs the function of issuing notes.
The function of issuing notes can only be performed by RBI therefore the central bank
acquired the solitary right of printing and issuing the notes which is declared as the
unlimited legal tender in all over the country (Chand, 2014). All the currency has
been issued by the Reserve Bank of India except one rupee notes as it is issued by
Ministry of Finance. Advantages of this function being performed by RBI are: (1) it
becomes easier to control the supply of money. (2) The credit amount can be easily
controlled by the bank as per the need of economy. (3) Public faith
 Banker to government: Reserve Bank of India also serves as a banker for the
government as it gathers the receipts of money and also makes payment for the
government. It also has to maintain the savings and deposit accounts of the
government (Diwan, 2014). The government of India has been represented as the
member IMF and world bank by the central bank of India.
 Custodian of cash reserves of commercial banks: The Reserve Bank of India performs
the function of custodian of cash reserves for commercial banks. It can be further
explained as all the commercial banks reserved their deposits with the central bank. It
can also be said that the Reserve Bank of India is the superintendence of all the cash
reserves of financial institutions.

Logistics and supply chain management 9
 Custodian of Country’s Foreign Currency reserves: The central bank of India
performs the function of custodian of country’s foreign currency. This right of
custody helps the central bank to tackle the crisis related with position of adverse
balance of payments.
 Lender of last resort: The central bank of India performs the function of lender of last
resort. Whenever there is a challenge regarding shortage of funds, RBI is there to save
them but there is a possibility of charging high rate of interest.
 Central Clearance and Accounts Settlement: The central bank of India also performs
the function of clearing of accounts which has become one of the essential functions
for RBI. The deposits of the commercial banks have been reserved by the RBI
therefore it becomes easier to settle the claim of each other with the help of book
keeping entries and in the books of the Central bank.
 Controller of Credit: As the credit money is must to check for controlling supply of
money or for price stability. The central bank of India performs the function of
controller of credit according to the requirements of government.
Role of RBI in Demonetization
Demonetization can be explained as the process of removing a currency unit of its status as
legal tender. This generally happens when the changes take place in the national currency.
Prime Minister MR. Narendra Modi has declared the demonetization of all Rs. 500 and Rs.
1000 notes of Mahatma Gandhi Series on 8th November, 2016 (IIM Raipur Media & PR Cell,
2017). The reasons behind demonetization are:
 To boost deposit base and savings.
 To improve monetary transmission and reducing lending rates.
 To remove the illicit and counterfeit cash which were encouraging illegal activities
like terrorism.
 To create room for further monetary accommodation.
 To support government finances.
Demonetization had already been take place two times before 8th November, 2016. RBI
managed demonetization very well. The management team of RBI has worked for long hours
at the time of demonetization (IIM Raipur Media & PR Cell, 2017). They used to work whole
week. They did not even had week offs because of the work load. The additional manpower

Logistics and supply chain management 10
has also been hired to manage the work load. At the time of demonetization RBI demanded
for fifty days to deposit the demonetised bank notes to credit in bank accounts. RBI used to
exchange the banknotes over its commercial bank branches for the people. - There was a set
limit of exchanging bank notes which was changing continuously (Singh & Singh, 2016).
In the beginning, from 8 – 13 November, 2016 limit of exchanging the banknotes was
Rs.4000 per person (Singh & Singh, 2016). Then from 14 – 17 November, 2016 limits got
increased by Rs. 500 that is Rs. 4500 per person (Supriya & Sultana, 2018). After 18th
November, 2016 limit was decreased to Rs. 2000 per individual. This process of exchanging
the banknotes got stopped after 25th November, 2016. It has also been noted that over the
process of demonetization the guidelines of RBI has been changed several times. RBI has
also faced the challenge of recalibration of ATMS as the sizes of the new banknotes are
totally different from new banknotes.
Corporate social responsibility activities by RBI
Corporate social responsibility (CSR) can be explained as the initiative taken by the business
organization in which they take responsibility of their effects on environment and society
(Thakur, 2015). It can be further defined as the ethical principle according to which the
organization should be responsible for their behaviour and effects on society and environment
(Vertigans & Idowu, 2017).
On December 20, 2007 RBI circulated a notice with the heading CSR, Sustainable
Development and Non-Financial Reporting to showcase the roles and responsibilities of
commercial banks in corporate social responsibility for all the scheduled banks (Sharma,
2017). RBI helps in many international issues such as Global Warming, Stern Review – the
Economics of Climate Change, The Happy Planet Index and The Kyoto Protocol
Conclusion
The Reserve Bank of India (RBI) is the central bank of India. It involves the well-defined
structure. The central bank of India has the most important responsibility of issuing notes.
The function of issuing notes can only be performed by RBI therefore it acquired the
monopoly of issuing the notes which is declared as the unlimited legal tender in all over the
country. It has its defined policies and procedures. Reserve Bank of India involves two main
policies that are Monetary Policy and Fiscal policy. It also performs the role of a banker for

Logistics and supply chain management 11
the government as it gathers the receipts of money and also makes payment in place of
government. It also has to maintain the savings and deposit accounts of the government. It
also helps to detect the fake currency from the economy. RBI has also played a vital role in
Demonetization. It managed demonetization very well. The management team of RBI has
worked for long hours at the time of demonetization. They used to work whole week. RBI
also involved in CSR activities under which RBI has supported to many international issues
such as Global Warming, Stern Review – the Economics of Climate Change, The Happy
Planet Index and The Kyoto Protocol.