Functions of RBI


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

The Reserve Bank of India is the central bank of India it was established as a shareholder’s bank on 1st April 1935. Its share capital was Rs. 5 crore, divided in to 5 lakhs fully paid up shares of Rs. 100 each. On 1st January 1949 it was nationalized. Its headquarters is at Mumbai. RBI, like any other bank performs almost all traditional Central banking functions. Due to country’s development it has also undertaken developmental and promotional functions.
 
RBI performs many functions, some of them are as follows.
 
 Issue Of Currency Notes
Under section 22 of RBI Act, the bank has the sole right to issue currency notes of all denominations except one rupee coins and notes. The one-rupee notes and coins and small coins are issued by Central Government and their distribution is undertaken by RBI as the agent of the government. The RBI has a separate issue department which is entrusted with the issue of currency notes.
 
Banker To The Government
The RBI acts as a banker agent and adviser to the government. It has obligation to transact the banking business of Central Government as well as State Governments. E.g.:- RBI receives and makes all payments on behalf of government, remits its funds, buys and sells foreign currencies for it and gives it advice on all banking matters. RBI helps the Government – both Central and state – to float new loans and manage public debt. The bank makes ways and meets advances of the government. On behalf of central government it sells treasury bills and thereby provides short-term finance.
 
 Banker’s bank And Lender Off Last Resort
RBI acts as a banker to other banks. It provides financial assistance to scheduled banks and state co-operative banks in form of rediscounting of eligible bills and loans and advances against approved securities.
RBI acts as a lender of last resort. It provides funds to bank when they fail to get it from other sources. It also acts as a clearing house. Through RBI, banks make interbanks payments.
 
 Controller Of Credit
RBI has power to control the volume of credit created by banks. The RBI through its various quantitative and qualitative techniques regulates total supply of money and bank credit in the interest of economy. RBI pumps in money during busy season and withdraws money during slack season.
 
Exchange control And Custodian Of Foreign Reserve
RBI has the responsibility of maintaining fixed exchange rates with all member countries of IMF. For this, RBI has centralized all foreign exchange reserves (FOREX). RBI functions as custodian of nations foreign exchange reserves. It has to maintain external valu of Rupee. RBI achieves this aim through appropriate monetary fiscal and trade policies and exchange control.
 
Collection And Publication Of Data
The RBI collects and complies statistical information on banking and financial operations of the economy. The Reserve Bank Of India’ Bulletian is a monthly publication. It not only provides information, but also results of important studies and investigations conducted by reserve bank are given. ‘The Report on currency and finance’  is an annual publication. It provides review of various developments of economic and financial importance.
 
 Regulatory And Supervisory Functions
The RBI has wide powers of supervision and control over commercial and co-operative banks, relating to licensing, establishment, branch expansion, liquidity of Assets, management and methods of working, amalgamation, re-construction and liquidation. The supervisory functions of RBI have helped a great in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation.
 
 Clearing House Functions
The RBI acts as a clearing house for all member banks. This avoids unnecessary transfer of funds between the various banks.
 
  Development And Promotional Functions
The RBI has helped in setting up Industrial Finance Corporations of India (IFCI), State Financial Corporations (SFCs), Deposit Insurance Corporation, Agricultural Refinance and Development Corporation (ARDC), units Trust of India (UTI) etc. these institutions were set up to mobilize savings, promote saving habits and to provide industrial and agricultural finance.
RBI has a special Agricultural Credit Department (ACD) which studies the problems of agricultural credit. For this Regional Rural banks, Co-operative, NABARD etc. were established. The RBI has also taken measures to promote organized bill market to create elasticity in Indian Money Market in order to satisfy seasonal credit needs.
Thus RBI has contributed to economic growth by promoting rural credit, industrial financing, export trade etc.


Tuesday, 09th Feb 2016, 04:53:08 AM

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