JAIIB & DB&F Exam 2018 PAPER 1: Notes of Principles & Practices of Banking PART B (in continue)

Dear Readers,



In the previous posts, we have discussed about the JAIIB/DB&F, exam pattern, Eligibility, schedule of the exam, syllabus and study plan in details subject wise. 

Now, we will be starting up with the Notes and Quizzes Subject wise and chapter wise starting up with the Paper 1 Subject - Principles & Practices of Banking 


PART B - BANKING REGULATION (In Continuation)

ROLE AND FUNCTIONS OF RBI (In Continuation)

Banker and Debt Manager to Government 
A key RBI role is managing the government’s banking transaction. Like individuals, businesses and banks, governments need a banker to carry out their financial transactions in an efficient and effective manner, including the raising of resources from the public. As a banker to the central government, the Reserve Bank maintains Government’s accounts, receives money into and makes payments out of these accounts and facilitates the transfer of government funds. By Statute RBI is banker to Central Government and it also acts as the banker to those state governments that have entered into a agreement with it.

Banker to Banks
All Banks maintain account with RBI to facilitate transfer of funds and settle inter-bank transactions— such as borrowing from and lending to other banks—and customer transactions. As the banker to banks, the Reserve Bank fulfills this role.
As the banker to banks RBI focuses on :
(a) Enabling smooth, swift and seamless clearing and settlement of inter-bank obligations.
(b) Providing an efficient means of funds transfer for banks.
(c) Enabling banks to maintain their accounts with it for purpose of statutory reserve requirements.
(d) Acting as lender of the last resort.

Lender of the last resort : The Reserve Bank provides liquidity to banks which are unable to raise short-term liquid resources from the inter-bank market. Like other central banks, the Reserve Bank considers this as a critical function because it protects the interests of depositors, which in turn, has a stabilizing impact on the financial system and on the economy as a whole.

Regulator of the Banking System
Banks are fundamental to the nation’s financial system. The central bank has a critical role to play in ensuring the safety and soundness of the banking system—and in maintaining financial stability and public confidence in this system. As the regulator and supervisor of the banking system, the Reserve Bank protects the interests of depositors, ensures a framework for orderly development and conduct of banking operations conductive to customer interests and maintains overall financial stability through preventive and corrective measures.
Different departments of the Reserve Bank oversee the various entities that comprise India’s financial infrastructure. RBI oversees :
(a) Commercial banks and all-India development financial institutions.
(b) Urban co-operative banks
(c) Regional Rural Banks (RRBs), District Central Cooperative Banks and State Cooperative Banks
(d) Non-Banking Financial Companies (NBFCs)

The RBI’s Regulatory Role
As the nation’s Banking regulator, the Reserve Bank performs various functions such as Licensing, Prescribing capital requirements, Monitoring governance, Setting prudential regulations to ensure solvency and liquidity of the banks, Prescribing lending to certain priority sectors of the economy, Regulating interest rates in specific areas, Setting appropriate regulatory norms related to income recognition, asset classification, provisioning, investment valuation, exposure limits, etc. To achieve this objective, the Reserve Bank makes use of several supervisory tools, they are :
On-site inspections, off-site surveillance, making use of required reporting by the regulated entities and thematic inspections, scrutiny and periodic meetings.
The Board for Financial Supervision oversees the Reserve Bank’s regulatory and supervisory responsibilities.

Corporate Governance
The Reserve Bank’s policy objective is to ensure high-quality corporate governance in banks. It has issued guidelines stipulating ‘fit and proper’ criteria for directors of banks. In terms of the guidelines, a majority of the directors of banks are required to have special knowledge or practical experience in various relevant areas. The Reserve Bank also has powers to appoint additional directors on the board of a banking company.

Manager of Foreign Exchange
The Reserve Bank is responsible for administration of the Foreign Exchange Management Act, 1999 and it regulates the market by issuing licenses to banks and other select institutions to act as Authorised Dealers in foreign exchange. In recent years, with increasing integration of the Indian economy with the global economy arising from greater trade and capital flows, the foreign exchange market has evolved as a key segment of the Indian financial market. The Reserve Bank plays a key roe in the regulation and development of the foreign exchange market and assumes three broad roles relating to foreign exchange :
(a) Regulating transactions related to the external sector and facilitating the development of the foreign exchange market
(b) Ensuring smooth conduct and orderly conditions in the domestic foreign exchange market
(c) Managing the foreign currency assets and gold reserves of the country.

The Foreign Exchange Department (FED) is responsible for the regulation and development of the market. On a given day, the foreign exchange rate reflects the demand for and supply of foreign exchange arising mainly from trade and capital transactions. The RBI’s Financial Markets Department (FMD) participates in the foreign exchange market by undertaking sales/purchases of foreign currency to ease volatility in periods of excess demand for/supply of foreign currency. The Department of External Investments and Operations (DEIO) invests the country’s foreign exchange reserves built up by purchase of foreign currency from the market. In investing its foreign assets, the Reserve Bank is guided by three principles : safety, liquidity and return.


The foreign exchange reserves fluctuation reflecting to dynamic economic activity of the country. RBI closely monitors the forex reserves and discloses reserves position to the market through its Weekly Statistical Supplement (WSS). According to the latest WSS as on 03.10.2014, the forex reserves of the country stands at US$311.42 billion.

Principles & Practices of Banking, (Paper 1)
To see the Syllabus and Chapters of this subject, kindly follow the below link -


JAIIB AND DB&F Paper 1 Syllabus: Principles & Practices of Banking


We will post Quizzes based on the Notes after finishing the PART A and PART B means Chapter 1 and Chapter 2 which we will include Objective type questions based on the exam pattern.

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