THE STRATEGIC ASPIRATIONS OF

THE RESERVE BANK OF INDIA

PRESENTED BY;

SOUJANYA

ASHOK

P. TRISHULA

SAI RAKESH REDDY

HISTORY OF RBI

•The Reserve Bank of India is the central bank of the country

•The Reserve Bank of India was set up on the basis of the recommendations of the Hilton Young Commission.

•The Reserve Bank of India Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank, which commenced operations on April 1, 1935.

•The Bank was constituted to :  * Regulate the issue of banknotes   * Maintain reserves with a view to securing monetary stability and   * To operate the credit and currency system of the country to its advantage.

•The Bank began its operations by taking over from the Government the functions so far being performed by the Controller of Currency and from the Imperial Bank of India, the management of Government accounts and public debt.

•Offices of the Banking Department were established in Calcutta, Bombay, Madras, Delhi and Rangoon.

•The Bank, which was originally set up as a shareholder's bank, was nationalized in 1949. •The Bank was also instrumental in institutional development and helped set up institutions like the Deposit Insurance and Credit Guarantee Corporation of India, the Unit Trust of India, the Industrial Development Bank of India, the National Bank of Agriculture and Rural Development, the Discount and Finance House of India etc. to build the financial infrastructure of the country.

GROWTH & DEVELOPMENT OF RBI –

1926 Birth of the Institution  Hilton Young Commission recommends setting up of the Reserve Bank of India. 1935 The Reserve Bank of India starts functioning.1947  RBI goes National. India gains independence.1949 The Reserve Bank of India is nationalized. 1950 Focus on Development. India embarks on planned economic development. RBI becomes an active agent and participant in this process.1951 - 1967 RBI engages in establishing an institutional infrastructure for agricultural and long-term individual credit.

1970 Mass banking RBI directs banks to take banking to masses by expanding their branch network and giving credit to the smallest borrower. 1973 Rigorous framework of exchange controls legislated to prevent capital flight.1991 Initiating Major Fiscal & Financial Reforms. India faces unprecedented Balance of Payment crisis; devalues rupee and stabilises external sector, simultaneously launches reforms in fiscal, trade, foreign investment and financial sectors. 1993-94  Adopts the international prudential norms and initiates a major effort to move away from micro to macro management of institutions. 1997 Enters into an agreement with the government for fiscal discipline.

2000  Legal framework to usher in convertibility on current account. Replacement of Foreign Exchange Regulation Act with Foreign Exchange Management Act. 2001 - 2003 RBI continues its efforts at development of financial markets, strengthening of the financial sector with cutting edge technology.

2004 - 2005 RBI puts in a modern payment and settlement system, strives to further strengthen the financial sector. 

•MANAGEMENT OF RBI IS THE RESPONSIBILITY OF THE CENTRAL BOD HEADED BY THE GOVERNOR, AND CONSISTS OF DEPUTY GOVERNORS AND OTHER DIRECTORS, APPOINTED BY THE GOVERNMENT.

•FOUR LOCAL BOARDS BASED AT CHENNAI, KOLKATA, NEW DELHI, AND MUMBAI.

•DAY-TO-DAY MANAGEMENT IN THE HANDS OF THE EXECUTIVE DIRECTORS, MANAGERS AT VARIOUS LEVELS AND THE SUPPORT STAFF.

•ABOUT 22000 EMPLOYEES AT RBI WORKING IN 25 DEPTS AND TRAINING COLLEGES.

STRENGTHS & WEAKNESSES OF RBI –

STRENGTHS:

-> large body of competent officers and staff.

-> Access to key data on the economy.

-> Wide organizational network with 22 regional offices.

-> Established infrastructure.

-> Ability to attract talent.

-> Financial self-sufficiency.

WEAKNESSES:

-> Structural rigidity

-> Lack of accountability

-> Slow decision-making

-> Eroded Specialist know-how

-> Strong employee unions with rigid industrial relations

-> Surplus staff

-> weak market intelligence

OPPORTUNITIES & THREATS : -

Opportunities:Entry of new foreign banks in to the country will

make the job easy to maintain liquidity in the market.

Signs of global recovery, Increase in cash flow both in domestic &external.

New FTP encouraging exports will be handy in maintaining foreign exchange reserves

Appreciating Rupee value compared to Dollar Private players imparting pressure on PSU in

increasing efficiency in providing services.

THREATS:

o Duplication of currency and currency trafficking by Havala.

o Highly sensitive to global economy leads to definite impact of global economic trends at times of recessions and economic boom- They are easily passed over to our economy too.

o Deprecating US $ on which economy is based

o High volatility in prices of gold based on which the international money markets are dependent.

THE PREAMBLE OF RBI DESCRIBES ITS-

FUNCTIONS: ‘ …To regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.’

VISION: ‘.. RBI aims to be a leading central bank with credible, proactive, transparent & contemporaneous policies and seeks to be a catalyst for the emergence of a globally competitive financial system that helps deliver a high quality of life to the people of the country.’

MISSION: ‘RBI seeks to develop a sound and efficient financial system with monetary stability conducive to balanced and sustained growth of the Indian economy.’

CORPORATE VALUES: Public interest, integrity, excellence, independence of views and responsiveness & dynamism.

OBJECTIVES OF RBI – 3 AREAS :

-Monetary policy objectives such as containing inflation and promoting economic growth. Management of foreign exchange reserves and making currency available.

- Objectives set for managing financial sector developments such as supervision of systems and information access and assisting banking and financial institutions to become competitive globally.

- Organizational development objectives such as development of economic research facilities, creating information systems for support economic decision making, financial management and HR management.

STRATEGIC ACTIONS ADOPTED BY RBI TO ACHIEVE ITS OBJECTIVES : -

-> Gain control of the thrust area of monetary policy formulation and managing the financial sector.

-> Evolving the legal framework to support the thrust area.

-> Customer services for providing support and creation of positive relationship

->Organizational support such as structure , systems, HR development and adoption of modern technology.

THE NEED FOR RBI TO REVISE ITS STRATEGIES:

- Sweeping changes in the economic, social political environment- Dynamics of the environment.

- Absence of a systematic strategic plan.

- Need to redefine and review RBI’s role and to review internal organizational and managerial efficacy.

- Address the changing expectations of external stake holders, and responsibilities.

- Need to reposition the bank in the global context.

In 1992, RBI, with the assistance of a private consultancy firm, embarked on a massive strategic planning exercise.

THE STRATEGIC PLAN OF RBI –

FOUR SECTIONS- Statement of mission, Objectives & policies, Review of strengths & weaknesses, and strategic actions required with an implementation plan.

- Anticipation of evolving external environment in the medium-term

- Evaluation of capabilities

- Elimination of out dated mandates for enhancing efficiency in operations in furtherance of best public interests.

Results to manifest in form of –

- Attaining a visible focus

- Reinforced proficiency

- Realization of shared sense of purpose

- Optimizing resource use

- Build- up of momentum to achieve goals.

Q1. QUALITY OF THE MISSION & VISION STATEMENTS OF THE RBI –

-> A MISSION STATEMENT MUST :

- Be precise & clear

- Be feasible

- Be motivating

- Be distinctive

- Indicate the major components of strategy

- Indicate how the objectives are to be accomplished

Mission of RBI : RBI seeks to develop a sound & efficient financial system with monetary stability conducive to balanced and sustained growth of the Indian economy.

VISION STATEMENT : Constitutes future aspirations that lead to an inspiration to be the best in one’s field activity.

VISION OF RBI: RBI aims to be a leading central bank with credible, proactive, transparent & contemporaneous policies and seeks to be a catalyst for the emergence of a globally competitive financial system that helps deliver a high quality of life to the people of the country.

The quality of a vision & mission statement and the objectives of the organization depends on their ability to bring out the strategic intent of that organization. Strategic intent refers to the purposes that the organization strives for. It is a framework within which firms operate, adopt a pre determined direction and attempt to achieve their goal.

Does RBI need systematic & comprehensive strategic planning rather than its earlier approach of pragmatic response to situations?

It is always good to be prepared for change

Rather than just making Damage control measures, RBI has to concentrate on making policies which be handy during down turns.

RBI keeping growth as target should formulate strategies which will make Indian economy immune to global economic trends.

As in the case of Indian Banks performing better when banks globally are bleeding, which is an affect of strict and stringent rules and strategic regulations of the RBI even during good time.

Especially in aspects like control of Inflation and balance of payments strategy plays an important role.

Well planed strategies can help them in providing enough liquidity in market instead of last minute changes in CRR and other Bank rates.

Foreign exchange reserves have to be taken care by proactive measures rather than just responding to market demand for dollar.

Every coin has two sides. Strategic planning and management should be viewed dialectically. The higher uncertainty is, the

more flexible strategies should be crafted. Uncertain environment requires strategic flexibility to seize opportunities, but flexibility also can be disciplined

• Hence, to exploit the usefulness of strategic planning and management, managers should obey contingency theory to make imperative strategies flexibly and to implement them adaptively along its disciplines.

• A strategy that doesn’t provide flexibility isn’t a strategy after all. The only way to find out which of the approaches should be followed by RBI is to undertake the process of strategic evaluation where the effectiveness of a strategy implemented can be tested and evaluated on the basis of the results achieved by such a strategy.

THANK YOU …