Role and Functions of RBI Economics Study Material & Notes

After the Central Government of India and the Ministry of Finance, its RBI plays the most crucial role in driving the economy of India. RBI extends its services to the other commercial banks of India and thus these banks provide banking services to the netizens. Also, RBI provides a safe and secure banking infrastructure to people living in India. The RBI tries to keep the repo rate as low as possible to ensure the proper cash flow in the market so that people invest more money in the development works. RBI jointly with the central government of India provides ease in foreign trade so that it attracts more FDI .

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 https://1investing.in/ Government and it also tenders useful advice to the government on matters related to economic and monetary policy. The Reserve Bank has adopted the Minimum Reserve System for issuing/printing the currency notes.

The Banking Regulation Act prescribes extensive requirements reserves, cash reserves, and liquid assets. Every scheduled bank is required to furnish to the Reserve Bank a weekly statement functions of rbi class 12 showing the principal items of its liability and assets in India. It is known as the apex body as it occupies the topmost position in the monetary and banking system 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. Banking Systems have been with us for as long as people have been using the money. Banks and Financial Institutions provide security for individuals, businesses, and governments. For the average person, Banks accept deposits, lend loans and provides a safe place for money and valuables and act as a payment agent between merchants and banks. The RBI is vested with enormous and extensive powers regarding supervision and control over Commercial Banks, Cooperative Banks and also Non-Banking Institution Institutions receiving deposits.

What are the Main Functions of RBI?

Own and operate the depository and exchange for government bonds. To assist in regulating the financial system of the country. RBI maintains Central and State Government funds like Consolidated Funds, Contingency Funds, and Public Account. Moreover, when RBI came into force it takes over the functions of Government so far being performed by the Controller of Currency and from the Imperial Bank of India.

• The organization also aims to maintain macroeconomic stability, financial stability, and a modern monetary policy framework in order to address the challenges posed by an increasingly complex economy.
• However, Central Bank is the backbone of all Banking sector without which there would be absolutely no banking sector involved.
• The power management in the capital has changed hands many times.
• He is the 25th RBI Governor and all the RBI functions are supervised by him.

The power management in the capital has changed hands many times. The Delhi State Electricity Board set up in 1951 was succeeded by the Delhi Electric Supply Undertaking in 1958. The Reserve Bank has not yet succeeded in getting the Commercial Banks any notable foreign exchange business. Purchase of Securities by Central Bank increases the reserves and raises the Bank’s ability to give credit.

The Bank enjoyed vast supervisory powers which enabled it to guide the development of banking on sound lines. Training of Bank personnel has improved their efficiency. The geographical and fundamental coverage of banking has also increased substantially. Commercial Banks lend loans to small-scale industrial units as per the directives issued by the RBI time to time.

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The RBI controls credit to en­sure price and exchange rate stability. 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. 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. 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.

The RBI has made serious efforts to develop a sound bill market in India. It has imparted a Substantial degree of elasticity to the credit structure of the country by introducing several Bill Market Schemes. Banks are strictly supervised by Reserve Bank so as to avoid their failures and to enhance public confidence in the banking systems. The Deposit Insurance System has also been introduced to protect the interests of investors. The Export Credit and Guarantee Corporation and Export-Import Bank were established initially by RBI to finance the foreign trade of India.

RBI is a common banker for the different banks that enables the settlement of interbank transfers of funds. RBI is also authorized to appoint other banks to act as its agent and undertake banking business on the behalf of the government. RBI is the responsible agency for receiving and paying money on behalf of the various government departments.

Since 1957, it maintains gold and foreign exchange reserves of Rs. 200 Cr. Should be in gold and remaining in the foreign currencies. The Bank has made a rational use of quantitative and qualitative measures of credit control to maintain monetary stability. These controls were generally employed in the direction of greater restraint in the context of persistent imbalances in the economy.

Developmental Role

Quantitative measures refer to those measures that affect the variables, which in turn affect the overall money supply in the economy. As discussed earlier, RBI executes Monetary Policy for Indian Economy. The RBI formulates, implements and monitors the monetary policy.

Another of the important functions of RBI is maintaining a reserve of foreign currencies that enables the RBI to deal with any crisis situation. The interest rate policy of RBI has resulted in a relatively stable structure of interest rates in the economy. The Bank rate remained unchanged at a low level of 3 percent up to 1951. Assets usually consist of gold coins, gold bullions, foreign securities, and domestic governments local currency securities. To establish monetary relations with other countries of the world and international financial institutions. In charge of issuing currency notes on behalf of the government.

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Harsh asked Explain the steps taken by the government in developing rural markets. RBI prepared a plan for the development of Bill Market in 1952. But to date, there is no Independent and Organised widespread bill market in India. It helps the bank in stabilizing the external value of the currency.

7.and later as the governor of RBI as with the case of Y. Other persons forming part of the central board of directors of the RBI are Dr. Nachiket Mor, Y. C. Deveshwar, Prof Damodar Acharya, Ajay Tyagi and Anjuly Duggal. Uma Shankar, chief general manager in charge of the Reserve Bank of India’s financial inclusion and development department has taken over as executive director in the central bank. The reverse happens in case of a decrease in the bank rate. This increases the lending capacity of banks as well as increases public demand for credit and hence will automatically lead to a rise in the volume of credit flowing in the economy. The RBI provides financial assistance to com­mercial banks and State cooperative banks through rediscounting of bills of exchange.

That means RBI comes to rescue the banks that are solvent but have not gone bankrupt. RBI provides this facility to protect the interest of depositors and to prevent the possible failure of the bank. Classify the various functions of the Reserve Bank of India. If you would like to contribute notes or other learning material, please submit them using the button below.

The Reserve Bank has helped in building up a well-differential structure of financial institutions to cater to the requirements of the different sources of the economy. It has introduced changes in monetary regulations of the Indian money market. RBI’s developmental role includes creating institutions to build financial infrastructure, ensuring credit to the productive sector of the economy, and expanding access to affordable financial systems. The organization also aims to maintain macroeconomic stability, financial stability, and a modern monetary policy framework in order to address the challenges posed by an increasingly complex economy. Like any other cen­tral bank, the RBI acts as a sole currency authority of the country.

The central bank deregulated bank interests and some sectors of the financial market like the trust and property markets. This first phase was a success and the central government forced a diversity liberalisation to diversify owner structures in 1998. A central bank is known by different names in different countries. The functions of a central bank may vary from country to country and are autonomous or body and perform or through another agency vital monetary functions in the country.

The RBI acts as the banker to the government of India and State Governments . As such it transacts all banking business of these Govern­ments. However, Central Bank is the backbone of all Banking sector without which there would be absolutely no banking sector involved.

The RBI helps in mobilizing the savings of the people for investment. It expanded the banking system throughout institutions like UTI, IDBI, IRCI, NABARD, etc. As an agent, the Central Bank also has the responsibility of managing the public debt. It also gives loans and advances to the government for temporary periods. The government borrows money by selling treasury bills to the Central Bank. Central banks in most developed nations are institutionally designed to be independent of political interference.