Overdraft – Nitin Mahesh

Hello Friends,

Today I am going to discuss about Reserve Bank of India (RBI). This is central bank of India.

It was established in 1934 as a private bank, government owned and it was not a commercial bank but its sole purpose was to provide basic services of Central Bank to India.

It is an agency or an institution to do traditional work of a central bank. Where Deposit, Credit can be done. Normal bank that we know are the bank which act as intermediaries between Depositors and Creditors. Difference between Central bank and commercial bank is that Central Bank is bank of Commercial bank and Commercial banks are bank to Citizen.

Central bank works on government behalf, like it can give pension, take income tax. It works for both government and commercial bank.

There are 27 PSU banks in India, 196 regional banks, various private banks and some international banks also like Bank of America and Citi. America has 4 central banks.

It make sure that savings are getting utilized, means savings should be in other forms of liquid cases like MFs, Share market, FDs etc.

It take care of Controlled Monitoring Expansion.

Some other institutional banks that got formed from RBI:

1964 – Industrial Development Bank of India from RBI

1982 – NABARD

1989 – National Housing Bank

RBI works as guide to these banks.

RBI works as custodian of foreign currency, controller of credit.

There is a question between RBI and government. Shall RBI works as free entity, no control from Government.

What is Deficit banking, you must be wondering: What happens When government needs money they order overdraft on their behalf to RBI and RBI release it. This is called Deficit Financing.

RBI gives guidance, advise, warning to break this deficit financing but govt ignores. So bank finds it is not good for future. Now an agreement happened between govt and RBI for limit of ordering Overdraft. So if government asks for more than the limit then RBI can decide what is good for future.

July 1991, Govt decontrol the government institution, and now almost every govt. institute is dismantling govt. control. So new economic system. no control, only market, capital power. So new situation is good but RBI should guide them.

Hope you liked my post. I will post more informative articles time to time.