(i) The government of India passed in 1951 the State Financial Corporations Act and SFCs were set up in many states.
(ii) SFCs are mainly intended for the development of small and medium industrial units within their respective states. 

The banks can borrow from the RBI by keeping eligible securities as collateral at the time of need or crisis, when there is no other source.

1. Bank of Bengal (1809)
2. Bank of Bombay (1840)
3. Bank of Madras (1843)

(i) To maintain an expert staff to study all questions on agricultural credit.
(ii) To provide expert advice to Central and State Government, State Co-operative Banks.
(iii) To finance the rural sector through eligible institutions and to co-ordinate them.

(i) SLR is the amount which a bank has to keep with itself in the form of cash, gold or approved securities.
(ii) CRR is the proportion of deposits which the bank has to keep with RBI in the form of cash.

Accepting Deposits
It implies that commercial banks are mainly dependent on public deposits.
There are two types of deposits, which are discussed as follows
(i) Demand Deposits
It refers to deposits that can be withdrawn by individuals without any prior notice to the bank. In other words, the owners of these deposits are allowed to withdraw money anytime by writing a withdrawal slip or a cheque at the bank counter or from ATM centres using debit card.
(ii) Time Deposits
It refers to deposits that are made for certain committed period of time. Banks pay higher interest on time deposits. These deposits can be withdrawn only after a specific time period by providing a written notice to the bank.

(I) To provide necessary funds by way of refinance to eligible institutions such as
(i) Central land development banks
(ii) State cooperative banks
(ill) Schedule banks
(II) To subscribe to the debentures floated by
(i) The central land development banks.
(ii) State cooperative banks
(ill) Scheduled banks
(iv) Provided and approved by the RBI.

Quantitative methods
1) Bank Rate Policy:
(i) It is the rate at which the Central Bank rediscount the first class.
(ii) The bank advances loans on approved securities to its member banks.
(iii) If the Central Bank wants to control credit, it will raise the bank rate.
(iv) So deposit rate and other lending rates rise, borrowing is discouraged.
2) Open Marker Operation:
(i) The Central Bank purchases and sells Government securities in the money market.
(ii) When banks or public buy these securities they have to pay to the Central Bank.
3) Variable Cash Reserves Ratio:
(i) The Central Bank controls credit by changing the Cash Reserve Ratio.
(ii) If Commercial Banks have excessive cash reserves and create too much credit, the central bank will raise the CPR.
(iii) If CRR is high, commercial bank's capacity to create credit will be less.
Qualitative Methods
1) Rationing of Credit:
(i) It controls and regulates the purposes for which credit is granted by commercial banks.
(ii) It is of 2 types - variable portfolio ceiling and variable capital asset ratio
2) Direct Action:
(i) Direct action is taken against erring banks
3) Moral Suasion:
(i) Central Bank gives advice, then requests and persuades the Commercial Banks to co-operate with the Central Bank in implementing its credit policies.
4) Publicity:
(i) A policy can be effectively successful only when an effective public opinion is created in its favour.
5) Regulation of Consumer's Credit:
(i) The down payment is raised and the number of installments reduced for credit sale.
6) Changes in the Marginal Requirements on Security Loans:
(i) The margin requirements can be increased to prevent excessive use of credit for stock exchange speculation

1. Credit Creation means the multiplicátion of loans and advances.
2. Every loan creates its own deposits.
3. It is assumed that all banks are obliged to keep the ratio between cash and its deposits at a minimum of 20 %.
4. The banks do not keep any excess reserves.
5. There are no drains in the supply of money.
6. Now, when a customer deposits Rs.1000 in a bank, the bank creates a deposit of Rs.1000 in his favour.
7. Bank deposits have increased by Rs.1000.
8. It is required to keep only a cash reserve of 20 %, i.e. Rs.800 is excess cash reserve.
9. The bank lends out this Rs.800 to the public.
10. The debtor deposits this money with another bank B.
11. Bank B is creating a deposit of Rs.800.
12. Bank B has also excess cash reserve of Rs.640.
13. It could in turn, lend out Rs.640.
14. The total deposits will now grow into Rs.1000 + 800 + 640 +........ till ultimately the excess cash reserve ends.
15. When this stage is reached, the total of the above will be Rs.5000.
16. Money Multiplier \( \frac{1}{20 \%}=\frac{1}{20} \times 100=5\)
Credit creation = 1000 x 5 = Rs.5000

1. The money supply increases which places downward pressure on the interest rate.
                                               \(\downarrow \)
2. The lower interest rate stimulates planned investment and aggregate output.
                                               \(\downarrow \)
3. This in turn increases the amount of money demand.
                                                \(\downarrow \)
4. This in turn may cause interest rates to fall by less than they otherwise would had there been
                                                \(\downarrow \)
5. No feedback effect from the increased demand for money hence forth.

(i) The agricultural development, an organization is called The Agricultural Refinance Development Corporation.
(ii) It was established by an act of parliament and it started functioning from 1 July, 1953.
(iii) The main aim of ARDC is to bridging the gap in agricultural finance and to extend credit for projects.
Objective of ARDC:
(i) To provide necessary funds by way of refinance to eligible institutions such as the Central land development Banks, State co-operative Banks and Scheduled Banks.
(ii) To subscribe to the debentures floated by the Central land Development Banks, State co-operative Banks, and Scheduled Bank provided they were approved by the RBI.

Introduction
(i) The Reserve Bank of India is India's central banking institution
(ii) It commenced its operations on 1 April 1935 and it was nationalised on 1 Jan, $1949 .$
1) Monetary Authority
(i) It controls the supply of money in the economy to stabilize exchange rate, maintain healthy balance of payment, attain financial stability, control inflation, strengthen banking system.
2) Issuer of currency
(i) It is the sole authority to issue currency
(ii) It also takes action to control the circulation of fake currency.
3) Issuer of Banking License
(i) Every bank has to obtain a banking license from RBI to conduct banking business in India.
4) Banker to the Government
(i) It is the banker to the central and the state governments.
(ii) It provides short term credit, manages all need issues of government loans, services the government debt outstanding
(iii) It advises the government on banking and financial matters.
5) Banker's Bank
(i) It is the bank of all banks in India as it provides loan to banks, accepts the deposit of banks and rediscounts the bills of banks.
6) Lender of last resort
(i) The banks can borrow from RBI by keeping eligible securities as collateral at the time of need when there is no other source.
7) Act as clearing house
(i) For settlement of banking transactions, RBI manages 14 clearing houses.
(ii) It facilitates the exchange of instruments and processing of payment instructions.
8) Custodian of foreign exchange reserves
(i) It administers and enforces the provision of Foreign Exchange Management Acr, 1999.
(ii) RBI buys and sells foreign currency to maintain the exchange rate of Indian rupee vs foreign currencies.
9) Regulator of Economy
(i) It controls the money supply in the system, monitors GDP, Inflation
10) Managing Government securities
(i) RBI administers investments in institutions when they invest specified minimum proportions of their total assets/liabilities in government securities.
11) Regulator and Supervisor of Payment and Settlement Systems
(i) RBI oversees the payment and settlement systems in the country.
(ii) It focuses on the development and functioning of safe, secure and efficient payment and settlement mechanisms.
12) Developmental Role
(i) It develops the quality of banking system in India and ensures that credit is available to the productive sectors of the economy.
(ii) It provides a wide range of promotional functions to support national objectives.
(iii) It establishes institutions which build the financial infrastructure.
(iv) It also helps in expanding access to affordable financial services and promotes financial education and literacy.
13) Publisher of monetary data
(i) It maintains and provides all essential bánking and other economic "data, formulating and critically evaluating the economic policies in India.
(ii) RBI collects, collates and publishes data regularly.
14) Exchange manager and controller
(i) RBI represents India as a member of the International Monetary Fund.
(ii) Most of thé commercial banks are authorized dealers of RBI.
15) Banking Ombudsman Scheme
(i) RBI introduced this Scheme in 1995
(ii) Those who have complaints including online, can appeal to the Ombudsman against the awards and the other decisions of the Banks.
16) Banking Codes and Standards Board of India
(i) To measure the performance of banks against Codes and Standards based on established global practices, the RBI has set up the Banking Codes and Standards Board of India.