RBI prepares its Balance Sheet as on 30th June every year and requires transmitting copies thereof to Government of India in terms of Section 53 of RBI Act.

Two Segments

RBI historically prepares its balance sheet under two segments of activities as required under RBI Act. One category pertains to its Notes/Currency issue functions and the other relating to its banking activities.

The Note issue function is carried out by its Issue Depart­ment, hence separate items of Assets and Liabilities are prepared for this department. We can observe from the balance sheet given at the end of this chapter that the entire liabilities of Issue Department consist only of total notes/currency issued by RBI.

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The other seg­ment, viz. Banking Department part of balance sheet covers its other banking activities like loans and advances to Government, scheduled banks, financial institutions, deposits from scheduled banks, etc.

Income

RBI earned a total income of Rs. 16,866.39 crore during 2001-02 Quay-June) as against Rs. 14,941.52 crore in 2000-01. Its main income from foreign sources is interest income earned from foreign currency assets like foreign securities, foreign govt, treasury bills, reserves held abroad, etc., Domestic income comes from interest earned on its loans and advances to banks, govts., etc., Similarly, interest earned on investment in govt, securities is also very large.

Profit

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The net surplus of RBI is transferred to Central Government as it is the only shareholder of RBI. The amount of profit transferred to Central Government for the year 1998-99 amounted to Rs. 4479 crore. It went up to Rs. 9,350 crore in 2001 and to Rs. 10,320 crore in 2002.

Is it possible to transfer similar such profit to government by other public sector banks? Discuss with your professors the special position of RBI which helps them to earn huge income and reasons thereof. This can be understood from the Asset side of its balance sheet and from its functions, in general.

Reserve Bank of India and Credit Control

Reserve Bank of India has its objectives the maintenance of internal and external value of currency but also the promotion of economic growth with reasonable price stability. It has to formulate suitable credit policies for achieving these objectives. The major function in this regard is the formulation and administration of the credit policy.

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In recent years, the objectives of monetary policy in India has two folds

(a) It has to facilitate the flow of adequate volume of bank credit to industry, agricul­ture and trade, and provide selective encouragement to the priority sectors for overall growth.

(b) To keep inflationary pressures under check, it has to restrain credit expansion and also ensure that credit is not diverted to undesirable purposes.

As the Central Monetary authority, the Reserve Bank’s main function is to ensure the availability of credit to the extent that is appropriate to sustain the tempo of development and promote the maintenance of internal price stability. This policy of RBI is termed as “controlled expansion “.

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RBI has recognised the needs for expansion of credit and money supply for the rapid development and diversification of the economy. At the same time it was equally aware that an excessive expansion of money and credit could be clearly inflationary and would ultimately endanger the financial stability of the economy.

The unlimited credit creation by the commercial banks poses a serious threat for maintenance of internal and external value of rupee and thereby to the national economy. Hence, it should be controlled and regulated at desired levels.