Constitution, OD @ Management & Functions OF R.B.| Tejinder Bhatti Nov. 30, 2017 « 2 likes « 10,507 views Constitution © The bank was established as a shareholder's bank with an authorized and paid-up capital of Rs. 5 crores divided into shares of Rs. 100 each. After independence, under the Reserve Bank Act, 1948, the bank was nationalized, after paying compensation to the shareholders at the market price of the share.What type of body is RBI? Reserve Bank of India is a statutory body. RBI was established through Reserve Bank of India Act, 1935. RBI is not a constitutional body. Although RBI has considerable institutional independence, it is under the control of the Ministry of Finance, Government of India after it was nationalised in 1949. You can read about the RBI — Know More About Reserve Bank of India in the given link.Important Functions of RBI (Reserve Bank of India) Being a central bank of India, RBI serves a critical role in regulating the financial transactions in the country. Some of the important functions of RBI are listed below: @ Issue of Bank Notes © Banker to the Government © Custodian of the Cash Reserves of Commercial Banks © Custodian of country’s forex reserves @ Lender of last resort © Controller of credit Now let us discuss these RBI functions in detail: The Issuer of Bank Notes The most important function of RBI is the issuance of currency notes and coins, except the one rupee note and coin which are issued by the Ministry of Finance. All other notes bear the signature of the RBI Governor. However, the agency of distribution of all notes and coins issued by the Government of India is the Reserve Bank of India.Banker to the Government Another chief function of RBI is that it takes care of the banking needs of the government, which includes maintaining & operating the deposit accounts of the government, collecting the receipts of funds, and making payments on behalf of the Government of India. It also represents the Indian Government, as a member of the International Monetary Fund and the World Bank. Custodian of Cash Reserves of Commercial Banks Commercial banks are required to maintain the cash reserves at a rate decided by the RBI in its monetary policy. Custodian of Foreign Exchange Reserve Another of the important functions of RBI is maintaining a reserve of foreign currencies that enables the RBI to deal with any crisis situation. Lender of the Last Resort Often regarded as the banker of banks, the RBI acts as a parent to all commercial banks in India. Thus, it becomes the lender of the last resort for all banks when they are in a crisis situation. RBI helps them by lending money, although at higher RoL to sail through the tide of financial difficultieController of Credit RBI controls the credit created by the commercial banks in India, in accordance with the economic priorities of the government of India. RBI uses quantitative and qualitative methods to control and regulate the flow of money in the market. These are implemented by announcing monetary policies at regular intervals. The monetary policy involves the management of interest rates and money supply. The central bank of India tweaks the money supply to achieve objectives such as liquidity, inflation, and consumption. This is an extremely topic to prepare for because not only is it the exam conducting body for RBI Grade B Exam but also your potential employer. Hence, a thorough knowledge of the structure and functions of RBI will help you in understanding it better. Further, over the years, questions from the RBI functions, structure, or the latest announcements/ notifications/guidelines that RBI announces are asked in the exam. According to the current trends, as many as 16% of the total questions from the Finance section are asked from RBI and monetary policy. Hence, do not skip the topic. Read it at length, as it is important for both Prelims and the Main exam.asked from RBI and monetary policy. Hence, do not skip the topic. Read it at length, as it is important for both Prelims and the Main exam. If you've any difficulty in preparing for these topics, you can consider joining our detailed course on RBI Grade B Mains. We're providing online classes, mock tests, and doubt-solving sessions to help you achieve your dreams. Check out our range of RBI Grade B preparation courses for an enhanced learning experience. Should you have any queries, you can get in touch with our course counselors to seek assistance.Role of RBI SO: Role of RBI Whatis the role of RBI? The RBI is the central bank of India. It was established in 1935 under a special act of the parliament. It is responsible for determining the country's monetary policy. The main role of the RBI is to maintain financial stability and to ensure adequate liquidity in the economy. The following are the main functions that the RBI performs dutifully: - 1) Monetary management: - One of the major functions of the RBI is the formulation and smooth execution of the monetary policy. Monetary policy makes use of various policy instruments that influence the cost and availability of money in the economy. The objective remains to promote economic growth and ensure stability of prices. It ensures a smooth flow of credit to the productive sectors of the economy. 2) Issuer of Currency: - The management and issuance of currency is a vital central banking function. The RBI is responsible for the design, production, distribution and the overall management of the nation’s currency. It works to ensure a sufficient supply of clean and genuine notes across the state. It works to reduce the risks of counterfeit. Counterfeited notes are often used for terrorist financing which have various ill-effects.3) Banker and debt manager of the government: - The RBI manages the government's banking transactions. The Government of India also deposits its cash balances with the Reserve Bank. It can also act as a banker to any state government. It appoints other banks to act as its agents for carrying out the transactions on behalf of the government. It also manages public debt and issues new loans on behalf of the Central and state governments. 4) Banker to banks: - The settlement of inter-bank transactions is also the function of the RBI. This is usually done through the mechanism of a “clearing house” where banks present cheques and other such tools for clearing. The Central bank acts as the common banker among all the various banks. 5) Lender of the last resort: - When a commercial bank fails to obtain funds from the available sources then the Central Bank issues loans to it as a “lender of the last resort”. It can come to the rescue of any bank by supplying it with the needed liquidity when no other institution is willing to extend credit to it. 6) Financial regulation and supervision: - The RBI's regulatory and supervisory functions are quite broad. It strives to maintain overall financial stability through various policy measures. It aims to achieve orderly development and conduct of banking operations, liquidity and solvency of banks. 7) Keeps a check on the growth of inflation: - The RBI maintains an inflation target of 4% with a +/- 2% tolerance band and deems it to be appropriate for thenext five years. Whenever the RBI lowers the interest rates, people get to borrow loans from the commercial banks at a reduced rate. This in turn places more money in the hands of the general public, which boosts their purchasing power and demand for stocks. This heightened demand raises the prices of goods and in turn causes inflation. Similarly, when the banks increase the interest rates, the amount of borrowing from the banks decreases. People have less purchasing power and the demand for stocks decreases. The RBI controls inflation in this manner. 8) Acts as the custodian of foreign exchange reserves: - The Central Bank also functions as the custodian of the nation’s foreign exchange reserves. It focuses on the maintenance of market's confidence in monetary and exchange rate policies. It helps to reduce the costs at which the foreign exchange resources are available to market participants. 9) Foreign exchange management: - The RBI oversees the foreign exchange market. It has also permitted foreign investment in almost all sectors. 10) Over-sees market operations: - The Central Bank operationalises its monetary policy through its operations in government securities, foreign exchange and money markets. It also carries out regulation and development of money market instruments such as, term money market, repo market, etc. Tl) Developmental role: - The RBI takes an active role in supporting and enhancing developmental activities= eléarnmarkets Q & By StockEdge in supporting and enhancing developmental activities in the country. It ensures that the productive sectors of the economy get enough credit and creates institutions to build financial infrastructure. It also works to guarantee banking services to all. It is understood that RBI has a significant role in the country’s economy. But there are some defined objectives of the RBI. They are: