Functions of Reserve Bank of India (RBI)

Introduction

The Reserve Bank of India (RBI) began its operations as the India’s Central bank in April, 1935. RBI plays an important role in Indian economy.

Originally, it was a private shareholders’ bank, but since January 1949 it has been functioning as the nationalized Central Bank.

The RBI as the leader of the Indian money market and as the India’s Central Bank performs the following useful functions:

Functions

Acting as Note-issuing Authority

The authority for the issuance of currency (other than one rupee coins/notes and subsidiary coins) in India is Reserve Bank of India. For the purpose of note issue, at present it has to keep a minimum reserve in foreign securities and in gold. It can however, dispense entirely with the holding of foreign securities if circumstances so require.

Acting as a Banker to the Government

The RBI transacts the banking business of both the Central and the State Governments. It is entrusted with the management of the public debt and the issue of new loans of Governments. It also holds the cash balances of the government free of interest. Besides, it sells Treasury Bills whenever necessary on behalf of the Government. It also gives advice to both the Central and the State Governments for raising finance for development Plans. Like all other Central Banks, the RBI acts as adviser to Government on various banking and financial matters. It also helps the Government to remit the funds from one place to another.

Acting as a Banker to the Other Banks

Like other central Banks, the RBI acts as a banker to other banks. It keeps a certain percentage of their deposits as reserve and gives them rediscounting facilities against some specified bills and furnishes advances against government securities. It also gives them free remittance facilities. Against these facilities the scheduled banks are required by law to keep a certain percentage of their deposit liabilities as reserve.

Monetary Regulations

The RBI controls the volume of bank advances to implement its monetary and credit policy. It possesses various methods of credit control such as the Bank Rate Policy, Open Market Operations, Variable Reserve Ratio, Selective Credit Controls, etc. At present, it has been implementing the policy of controlled expansions of bank credit.

Supervision and Control of Commercial Banks

The Banking Regulations Act 1949, has empowered the RBI to supervise and control the operations of the commercial banks regarding their, paid up capital and reserves, licensing, branch expansion, cash balance, liquid assets, submission of periodical reports to the RBI, suspension of business etc.

Maintenance of Exchange Value of the Rupee

The RBI has also an important role to play in the maintenance of the exchange value of the rupee. For this purpose, it is entrusted with the custody and management of the country’s international reserves. It acts also as the agent of the government in respect of India’s membership control in accordance with the Government’s trade policy.

Development and Promotional Functions

With the progress of the economy, the RBI has been undertaking various development functions relating to mobilization of savings, extensions of banking facilities in the un-banked centers, finance for agriculture and industries, protection of depositor’s interest through deposit insurance., etc.

Control of the Activities of Non-banking Companies and Other Institutions

Recently, the RBI has been empowered to lay down the regulations regarding the acceptance of deposits from the public by non-banking companies and institutions. It can also demand the statement regarding such deposits from these institutions.

Implementation of the Plans

The RBI also gives its opinion to the Governments on economic and financial matters relating to the implementation of the Plans. It assists the government in undertaking deficit financing, maintaining price stability and providing credit for the priority sectors.

Other Functions

The other functions relate to the regular publication of reports on banking and currency, conducting the clearing houses, developing bill markets, appointing committees and commissions on various economic aspects of the country, etc.

Conclusion

Thus it is found that the RBI plays a very important role in the economy. The scope of functions of Reserve Bank of India (RBI) has been increasing both geographically arid functionally.

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