Role and Functions of Reserve Bank Of India (RBI)

 

Reserve Bank of India (RBI) is the central bank of India entrusted with a multidimensional role which includes implementation of monetary policy and maintaining monetary stability in the country. RBI was established on 1st April 1935 under the Reserve Bank of India Act, 1934. RBI was set up after the recommendations of Hilton young Commission which had submitted its report in the year 1926. Later on, in 1931 the Indian Central banking enquiry committee had also recommended for the establishment of the central bank in India.

Initially, Reserve Bank of India was established as a private shareholders bank, but it was nationalized after independence in the year 1949 through the Reserve Bank (Transfer of public ownership) act, 1948.

Functions of RBI

Primary or Traditional Functions of RBI

• NOTE ISSUING AUTHORITY
• BANKER TO THE GOVERNMENT
• BANKER’S BANK
• LENDER OF THE LAST RESORT
• CREDIT CONTROL
• CUSTODIAN OF FOREIGN EXCHANGE RESERVE
• COLLECTION OF DATA AND PUBLICATION

• NOTE ISSUING AUTHORITY                                                    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

Reserve Bank manages the banking needs of the government. It maintain and operate the government’s deposit accounts. It collects receipts of funds and make payments on behalf of the government. performs merchant banking function for the central and the state governments; also acts as their banker.

• BANKER’S BANK

The Reserve Bank performs the same functions for the other commercial bank as the other banks ordinarily perform for their customers. RBI lends money to all the commercial banks of the country. All banks operating in the country have account with the Reserve Bank.

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• LENDER OF THE LAST RESORT 
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• The commercial banks approach the Reserve Bank in times of emergency to tide over financial difficulties, and the Reserve bank comes to their rescue though it might charge a higher rate of interest.

• CREDIT CONTROL                                                                                              

Credit control is a major weapon of RBI used to control Demand & Supply of money in the economy

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 EXCHANGE RESERVE                                                                                                                                                       

  
  
  
  

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.

• COLLECTION OF DATA AND PUBLICATION                                                                                                                                                                        

RBI collects data about interest rates, inflation, deflation, savings, investment etc. which is very helpful for researchers and policymakers. It publishes data on different sectors of the economy through its Publication division. It publishes monthly bulletin, weekly reports, annual reports, reports on trend and progress of commercial bank etc.

Thanks for taking out your time to read this blog .I hope you all must have gained some knowledge .

Thanks again.