Failure of Reserve Bank of India : 9 Main Causes

The following points highlight the nine main causes for the failure of Reserve Bank of India.

Some of the causes are: 1. Absence of co-ordination in the money-market 2. Absence of proper banking facilities 3. There is no uniformity in interest rates 4. Absence of well developed bill market and Others.

Cause # 1. Absence of co-ordination in the money-market:

There is no proper co-ordination among the different sectors of Indian Money-market.

The Indigenous Bankers even to-day lie out-side the purview of the control of the Reserve Bank.

This is one of the important causes of the failure of the Reserve Bank of India.

Cause # 2. Absence of proper banking facilities:

The present banking facilities are not adequate, if we study it with the area of the country and its population, we can safely come to the conclusion that there are number of places where no banking facilities are available. Therefore, it can be said that Reserve Bank has not succeeded in removing this short-coming in the Indian banking system.

Cause # 3. There is no uniformity in interest rates:

Due to lack of co-ordination in the Indian money-market, a great diversity of interest rates is found in different parts of the country. This diversity can be considered as a major cause of failure of the Reserve Bank.

Cause # 4. Absence of well developed bill market:

The development of the bill market is not adequate for the country. Reserve Bank has not been able to develop this market suitably and effectively.

Cause # 5. No proper and adequate development of agriculture credit:

There is no doubt that the Reserve Bank has taken several steps for the agricultural credit, yet it has not been possible to bring about an adequate development of this credit in the country. Even to-day sufficient credit at reasonable rates is not available to the farmers for agricultural purposes.

Cause # 6. Reserve bank is simply a toothless watch dog:

In-spite of the wide powers of Reserve Bank, but the truth is that the bank has turned out to be a toothless watch dog in performing its role as the coordinator, controller and regulator of India’s banking system.

Cause # 7. Failure to Function as the Lender of the Last Resort:

As a lender of the last resort it is expected that the Reserve Bank will extend its protection to the member banks against banking crisis. But unfortunately this hope has not been fulfilled. Several banks failed in the country but the Reserve Bank could not save them from failure

Cause # 8. Reserve bank has failed to secure equitable share for the Indian banks in foreign exchange business:

In India the foreign exchange banks continue to enjoy almost complete monopoly of the foreign exchange business. The Reserve Bank has failed to secure to the Indian banks a proper and equitable share in the foreign exchange business of the country.

Cause # 9. Instability situation in the internal value of the rupee:

The Reserve Bank is not able to maintain the stability in the internal value of rupee which is considered as a great failure of the Reserve Bank. The inflation has produced adverse repercussions on the economic situation of the country. Though, the Reserve Bank has adopted several anti-inflationary measures, it has not been able to make any significant impact on the monetary situation in the country.