FUNCTIONS OF RBI

DEV KAUSHIK
19001433014
RBI

• The Reserve Bank of India (RBI) is India's central bank and regulatory body under the
jurisdiction of Ministry of Finance , Government of India and is responsible for the issue and
supply of the Indian rupee and the regulation of the Indian banking system. It also manages
the country's main payment systems and works to promote its economic development.
• Until the Monetary Policy Committee was established in 2016,it also had full control
monetary policy in India. It commenced its operations on 1 April 1935 in accordance with the
Reserve Bank of India Act, 1934.The original share capital was divided into shares of 100
each fully paid. Following India's independence on 15 August 1947, the RBI was nationalized
on 1 January 1949.
7 MAIN FUNCTIONS OF RBI:

• The following points highlight the seven main functions of the RBI. The functions are:
• 1. Monopoly of Note Issue
• 2. Banker’s Bank
• 3. Banker to the Government
• 4. Controller of Credit
• 5. Exchange Management and Control
• 6. Miscellaneous Functions
• 7. Promotional and Developmental Functions.
MONOPOLY OF NOTE ISSUE:

• Like any other cen­tral bank, the RBI acts as a sole currency authority of the country. It issues notes of every denomination, except one-
rupee note and coins and small coins, through the Issue Department of the Bank.

• One- rupee notes and coins and small coins are issued by the Government of India. In actuality, the RBI also issues these coins on behalf
of the Government of India. At present, notes of denominations of rupees two, five, ten, twenty, fifty, one hundred and five hundred are
issued by the RBI.
• Prior to 1956, the principle of note issue of the RBI was based on proportional reserve system. This system was replaced by the
minimum reserve sys­tem in 1956 under which the RBI was required to hold at least Rs. 115 crores worth of gold as back­ing against the
currency issued.

• The rest (Rs. 85 crores) should be in foreign securities, so that to­gether with gold and foreign exchange reserve the minimum value of
these assets is Rs. 200 crores.
BANKER’S BANK:

• As bankers’ bank, the RBI holds a part of the cash reserves of commercial banks and lends them funds for
short periods. All banks are required to maintain a certain percentage (lying between 3 per cent and 15 per
cent) of their total liabilities. The main objective of changing this cash reserve ratio by the RBI is to control
credit.

• The RBI provides financial assistance to com­mercial banks and State cooperative banks through
rediscounting of bills of exchange. As the RBI meets the need of funds of commercial banks, the RBI func­
tions as the Tender of the last resort’.
• The RBI has been empowered by law to super­vise, regulate and control the activities of commer­cial and
cooperative banks. The RBI periodically in­spects banks and asks them for returns and neces­sary information.
BANKER TO THE GOVERNMENT:

• The RBI acts as the banker to the government of India and State Governments (except Jammu and Kashmir). As such it transacts all banking business of these Govern­ments.
• (i) Accepts and pays money on behalf of the Government.

• (ii) It carries out exchange remittances and other banking operations.

• As the Government’s banker, the RBI provides short-term credit to the Government of India. This short-term credit is obtainable through the sale of treasury bills. Not only
this, the RBI also provides ways and means of advances (repayable with 90- days) to State Government. It may be noted that the Central Government is empowered to
borrow any amount it likes from the RBI.

• The RBI also acts as the agent of the Govern­ment in respect of membership of the IMF and World Bank.

• Furthermore, the RBI acts as the adviser of the Government not only on banking and financial mat­ters but also on a wide range of economic issues (like financing patterns,
mobilisation of resources, insti­tutional arrangements with regard to banking and credit matters, arrangements with regard to bank­ing and credit matters, international finance)
etc.
CONTROLLER OF CREDIT:

• The RBI controls the total supply of money and bank credit to sub serve the country’s
interest. The RBI controls credit to en­sure price and exchange rate stability.

• To achieve this, the RBI uses all types of credit control instru­ments, quantitative,
qualitative and selective. The most extensively used credit instrument of the RBI is the
bank rate. The RBI also relies greatly on the selective methods of credit control. This
function is so important that it requires special treatment.
 EXCHANGE MANAGEMENT AND CONTROL:

• One of the essential central banking functions performed by the Bank is that of maintaining the external value of rupee. The
external stability of the currency is closely related to its internal stability the inherent economic strength of the country and the
way it con­ducts its economic and monetary affairs.

• Domestic, fiscal and monetary policies have, therefore, an im­portant role in maintaining the external value of the currency.
Reserve Bank of India has a very impor­tant role to play in this area.
• The RBI has the author­ity to enter into foreign exchange transactions both on its own account and on behalf of the Govern­ment.

• The official external reserves of the country consist of monetary gold and foreign assets of the Reserve Bank, besides SDR
holdings. The Reserve Bank, as the custodian of the country’s foreign ex- change reserves, is vested with the duty of managing
the investment and utilisation of the reserves in the , most advantageous manger.
MISCELLANEOUS FUNCTIONS:

• The RBI collects, collates and publishes all monetary and banking data regularly in its
weekly statements in the RBI Bulletin (monthly) and in the Report on Currency and
Finance (annually).
PROMOTIONAL AND DEVELOPMENTAL
FUNCTIONS:
• Apart from these traditional function, the RBI performs various activities of promotional and developmental nature. It attempts to mobilise
savings for productive purposes. This is done in various ways. For instance, RBI has helped a lot in building the huge financial infrastructure that
we see now.
• ‘This consists of such institutions as the Deposit Insurance Corporation (to safeguard the interests of depositors against bank failure), the
Agricultural Re­finance and Development Corporation (to meet the needs of agriculturists), IFCI, SFCs, IDBI, UTI (to meet the long and medium
term needs of industry), etc.

• As for cooperative credit movement, the RBI’s performance in really commendable. This has re­sulted in curbing the activities of moneylenders in
the rural economy.

• Thus, it is clear that RBI is not a typical Cen­tral Bank as is traditionally understood. It is some­thing more than a Central Bank. It regulates not
only currency and credit but aids the development of the Indian economy by conducting various types of promotional activities. As such, in RBI
we see many activities combined into one.
FUNCTIONS OF RESERVE BANK

• Issue of Notes —The Reserve Bank has a monopoly for printing the currency notes in the country. It has
the sole right to issue currency notes of various denominations except one rupee note (which is issued by
the Ministry of Finance).
• Banker to the Government–The second important function of the Reserve Bank is to act as the Banker,
Agent and Adviser to the Government of India and states. It performs all the banking functions of the
State and Central Government and it also tenders useful advice to the government on matters related to
economic and monetary policy. It also manages the public debt of the government.
• Banker’s Bank:- The Reserve Bank performs the same functions for the other commercial banks as the
other banks ordinarily perform for their customers. RBI lends money to all the commercial banks of the
country.
TO BE CONT…….

• Controller of the Credit:- The RBI undertakes the responsibility of controlling credit created by
commercial banks. RBI uses two methods to control the extra flow of money in the economy. These
methods are quantitative and qualitative techniques to control and regulate the credit flow in the
country. When RBI observes that the economy has sufficient money supply and it may cause an
inflationary situation in the country then it squeezes the money supply through its tight monetary policy
and vice versa.
• Custodian of Foreign Reserves:-For the purpose of keeping the foreign exchange rates stable, the
Reserve Bank buys and sells foreign currencies and also protects the country's foreign exchange funds.
RBI sells the foreign currency in the foreign exchange market when its supply decreases in the
economy and vice-versa. Currently, India has a Foreign Exchange Reserve of around US$ 487 bn.
TO BE CONT…….

• Other Functions:-The Reserve Bank performs a number of other developmental works.

These works include the function of clearinghouse arranging credit for agriculture (which
has been transferred to NABARD) collecting and publishing the economic data, buying
and selling of Government securities (gilt edge, treasury bills etc)and trade bills, giving
loans to the Government buying and selling of valuable commodities etc. It also acts as
the representative of the Government in the International Monetary Fund (I.M.F.) and
represents the membership of India.
Thank you