Ques. What are the functions of RBI?

Ans.

Reserve Bank of India was established in 1935 under RBI Act, 1934, was was later nationalised in
1949.

Main purpose of RBI is to issue currency and to maintain financial stability in India to ensure use of
credit and currency to advantage.

However, main functions can be listed as:

1. Monetary Policy
2. Regulation and Supervision of Financial Markets
3. Issuer and Manager of currency
4. Manager of FOREX market
5. Banker to Banks
6. Banker to Government and Public Debt Management
7. Financial Inclusion
8. Consumer Education and protection

1. Monetary Policy
One of the main function of RBI is to maintain price stability in India.
For this purpose, Govt on recommendation of Urjit Patel Committee consituted Monetary
Policy Committee in 2016 to maintain flexible CPI target in India.
The target is set by Central Government on recommedation of RBI and is revised every 5
years.
MPC has to meet atleast 4 times a year and has to achieve the target of maintaining CPI as
given by Government through various financial tools like CRR, SLR, LAF, Bank Rate etc.
The current target set by GoI is 4 +/- 2 percent upto 2025.

2. Regulation & Supervision of financial market

RBI is responsible for regulating and supervising financial market in India to promote
growth and to maintain public confidence in economy.
RBI acts as a regulator of Scheduled Commercial Banks, All India Financial Institutions,
Urban Co-operative Banks and Non-Banking Financial Institutions, under Banking
Regulation Act, 1949.
Every bank has to take licence from RBI to open its operation in the physical boundaries of
India and has to take permission for expansion and opening/closing of its branches.
RBI regulates & supervises banks in various opeartional activities like KYC, Corporate
Governance, Public Disclosure Norms, etc., checks on maintaining statutory reserves and risk
management of bank.
RBI also regulates All India Financial Institutions like SIDBI, NABARD, EXIM and NHB
and Non-Banking Financial Institutions.

3. Issuer and Manager of Currency

RBI issues all currency notes except Rupee 1 Currency notes, under Section 22 of RBI Act,
1934.
RBI circulates all coins, which are minted and issued by GoI.
RBI is responsible for planning, issuance and distribution of currency notes. It is also
responsible for exchanging of soiled notes and destroying solied notes. It has to also deal with
counterfeiting notes.
 Minting of Coins is done by Security Printing and Minting Corporation of India Ltd, which
is a Navratna Company, incorporated in 2005, and wholly owned by GoI. It has 4 minting
presses located at Mumbai, Kolkata, Hyderabad and Chennai and 2 currency printing presses in
Nashik and Dewas. 1/3rd of total currency is printed by SPMCIL.
Bharatiya Reserve Note Mudran Pvt Ltd., which is wholly owned by RBI was established in
1995. It has 2 Currency printing presses in Mysuru and Salboni. 2/3rd of currency is printed by
BRNMPL.
Recently, RBI has taken new digital initiatives like MANI for identification of currency
notes. It has established Quality Assurance Lab in Mumbai to improve quality of currency notes,
and has started integrating currency management with CBS.

4. Manager of FOREX Market

RBI used to manage the FOREX reserves under FERA Act, 1971, which operated foriegn
currency at fixed rate. However after Balance of payment crisis, foreign currency was operated
with flexible market determined rate, and later the FOREX Market of India was operated under
FEMA Act, 1999.
RBI is responsible for maintaing the exchange rate of rupee in FOREX market by
maintaining demand and supply of INR.
RBI is also responsible to maintain the FOREX reserves in form of Foreign Currencies,
SDR(Special Drawing Rights) and RTP(Reverse Tranche Position) in IMF and Gold Reserves.

5. Bankers to Banks
RBI is responsible for enabling swift, smooth and seamless Clearing and Settlement of Inter-
Bank Transactions.
All banks have to maintain accounts with RBI to maintain the statutory balances like CRR
and SLR as per NDTL of respective banks. It also has to maintain seperate account for RTGS
settlement which is maintained at Mumbai RO. Bank can also maintain special purpose accounts
like SBI DD/TT Payable and LOC account.
International Institutions can also maintain Rupee Account in RBI.
RBI also provides Loans to banks against Government Securities, and acts as a lender of last
resort.

6. Banker to Government and Public Debt Management

RBI acts as banker to Central and State Governments. Account of various departments are
maintained at Regional offices. Account of State Govt is managed by CAS, Nagpur.
RBI also provides Ways and Means Advances (WMA) to meet temporory mismatch of
receipts and payments.
There are three types of account which can be maintained at RBI which are
1. Personal Ledger Account - It is current account and can be permitted to operate
upto extent of balance available.
2. Drawing Account - It is current account and is permitted to opearted on
government balance without any limits.
3. Assignment Account - It is Line of credit account which is created with specific
purpose, time and amount.
RBI is also responsible for public debt managemant on the behalf of Governments. It issues
Government securities in exchange of loans. It is also reponsible for investing surplus money
in Government account to various instruments.

7. Financial Inclusion & Consumer Eduaction and protection

RBI has to give foremost priority to the vulnerable and weaker sections of societies.
 RBI encourages financial inclusion of by providing financial services and credit to
vulnerable and weaker sections of societies, by promoting various government schemes and
projects.
NABARD was established in 1988 to increase financial inclusion and tpo provide credit to
priority sectiors like, Agriculture, MSME, Education, Social Infrastruture, Renewable Energy
and Housing.
RBI also educates the consumers by giving advertisements on TV and Newspaper, so that
common man can stay alarmed from various scams occuring in todays digital world.