General Knowledge

Explain the Functions of Reserve Bank of India

Today let us learn the Functions of RBI (Reserve Bank of India) known as Bankers Bank and it is the central bank of the country. It was created on April 1st, 1935 in accordance with the RBI Act, 1934 as a private shareholders bank.

After Independence RBI was nationalized by the government on 1st January 1949 and became the country’s central bank.

The head office of the RBI is located in Mumbai. It has regional offices in Chennai, Delhi, Kolkatta, and Mumbai.

In addition, branches are established in Bangalore, Hyderabad, Kanpur, Lucknow, etc. Currently, the governor of RBI is Shaktikanta Das.

Functions of Reserve Bank of India

The functions of RBI are divided into 3 types. They are:

  1. Traditional functions
  2. Development functions and
  3. Other functions

1. Traditional functions

The Traditional functions of RBI are as follows:

a) Issuing currency notes

RBI has the sole authority to print and issue currency notes in the country. With the exception of one note, the RBI issues denomination of Rs. 2, 5, 10, 20, 50, 500, and 1000 Currency notes.

Today after the note ban in Modi government Rs.1000 totally withdrawn and introduced Rs.2000 note for the first time with the help of RBI.

The one rupee note is issued by the finance minister of the central government. Since 1956, the RBI follows the “Minimum Reserve System” of note issue.

b) Banker to Government

RBI acts as a banker and government advisor. As a banker and government agent, it opens accounts of the government, receives money, makes payments on behalf of the government, transfers public funds, gives loans to the government, manages public debt and maintains accounts of expenditure. It advises the government on all financial matters.

c) Acting as a bankers Bank

The RBI acts as bankers Bank, all banks in the country are under the control of the RBI. As a bankers Bank, it performs the following functions:

* It holds a portion of the cash reserves of commercial banks.

* RBI also provides credit to the banks by discounting bills and advancing money on various securities.

* From time to time RBI also gives instructions and advice to banks on their transactions.

d) Credit Control

RBI has the important function of control of credit generated by commercial banks in the country. Important credit control methods are as follows:

  • Bank rate policy
  • Open market operation
  • Cash reserved ratio
  • Giving directives to banks, etc..

Also, read Economic Planning in India

e) A leader of the Money Market

RBI is the leader of the Money Market in the country. It controls the activities of different components of the money market such as commercial banks, financial institutions, etc.

f) Custodian of foreign exchange reserves

It provides the necessary foreign exchange to our International trade. It also fixes the exchange rates between Indian rupees and foreign currencies with the consultation of the government.

g) Lender of the last resort

RBI is the leader of last resort to all the commercial banks in the country. The commercial banks in times of crisis can ask the RBI to grant loans and help in the situation.

h) Clearing House

The mutual claims of banks are settled through book adjustments by way of accounts of various banks maintained by the RBI.

2. Development Functions

The Development functions of RBI are as follows:

a) Agricultural Finance

RBI has a separate agricultural department to finance the agricultural sector. RBI indirectly grants credit to agriculture through NABARD and State Co-operative banks.

b) Industrial Finance

RBI took a special interest in Industrial development. It has established specialized institutions to supply Industrial finance.

3. Other Functions

The other functions of RBI are as follows:

a) Research Functions

RBI collects information on the different sectors of the economy and also issues periodicals. RBI issues special bulletins regarding the supply of finance, working of banks, etc..

b) Special Functions

As the country’s central bank, the RBI conducts studies on banking credit, agriculture, industry, etc. and provide solutions to various problems found in the sectors. It also provides training facilities for bank staff.

c) Collection of Stats

RBI collects all statistics related to the money supply, banking operations, agriculture, trade, etc., and these statistics will be provided to the government.

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