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The Reserve Bank of India RBI Functions, Definition, and Role

Issue of Notes —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). Let’s assume the economy is showing inflationary trends and the RBI wants to control this situation by adjusting SLR and CRR.

In short, the economic growth and development of the country are affected by the monetary decisions taken by the RBI. Two of the four deputy governors are traditionally from RBI ranks and are selected from the bank’s executive directors. One is nominated from among the chairpersons of public sector banks and the other is an economist. An Indian Administrative Service officer can also be appointed as deputy governor of RBI and later as the governor of RBI as with the case of Y. Controller of credit is a financial tool used by the Reserve Bank of India (central bank) to manage the demand for and supply of money and the circulation of credit during an economy. The Reserve Bank of India maintains oversight over the credit generated by commercial banks.

What are the main functions of Reserve Bank of India?

The RBI and the government are in charge of the creation, manufacturing, and overall administration of the national currency with the aim of releasing a sufficient quantity of authentic and clean notes. So now, the RBI is responsible to oversee the foreign exchange market in India. RBI supervises and regulates the Foreign Exchange Market through the provision of the FEMA Act 1999. The Reserve Bank of India (RBI) was established as the central bank of India based on the recommendations of the Hilton Young Commission. The Government received enquiries from the Collectors as to the batta they should charge on the different species they received from zamindars and farmers. The proposed bank was to fix the value, in Sicca rupees, of the bills it had to issue in return for the money received from the Collectors, on the basis of the same batta.

As bankers’ bank, the RBI holds a part of the cash reserves of commercial banks and lends them funds for short periods. All banks are required to maintain a certain percentage (lying between 3 per cent and 15 per cent) of their total liabilities. The main objective of changing this cash reserve ratio by the RBI is to control credit. The nation sees a rise in inflation at times and also achieves stability at some other times. This fluctuation keeps happening with the varied credit interest rates set by the RBI. It supervises the declaration of credit based on the availability of its cash reserves, checks on the use of money for various projects etc.

  • One of the most important functions of RBI is the formulation and execution of Monetary Policy and securing monetary stability in India It functions the currency and credit system to its advantage.
  • The RBI is in charge of looking after India’s foreign exchange reserves.
  • BFS through the Audit Sub-Committee also aims at upgrading the quality of the statutory audit and internal audit functions in banks and financial institutions.
  • BRBNM was established by RBI on 3 February 1995 for the purpose to enable RBI to bridge the gap between maintain, demand and supply of Indian rupee notes in the country.
  • The first paper notes were issued by the private banks such as Bank of Hindustan and the presidency banks during late 18th century.

The RBI acts as a regulator and supervisor of the overall financial system. This injects public confidence into the national financial system, protects interest rates, and provides positive banking alternatives to the public. For India, this means that currency is either issued or destroyed depending on its fit for current circulation. This provides the Indian public with a supply of currency in the form of dependable notes and coins, a lingering issue in India. The Reserve Bank of India (RBI) is the central bank of India, which began operations on Apr. 1, 1935, under the Reserve Bank of India Act. The Reserve Bank of India uses monetary policy to create financial stability in India, and it is charged with regulating the country’s currency and credit systems.

Objective and Establishment of RBI

They are headed by senior officers in the rank of Chief General Manager. As per Preamble to the Government Securities Act, 2006, it is an Act to consolidate and amend the law relating to Government securities and its management by the RBI and for matters connected therewith or incidental thereto. However, such additional work shall not interfere with duties as Governor or Deputy Governor. RBI is an institution of national importance and the pillar of the surging Indian economy. Mostly all are in Capital cities, exceptions are the Nagpur Reserve Bank branch which is actually a Second capital of Maharashtra and the Ahmedabad Reserve Bank branch.

Cash reserve ratio (CRR)

(c)   To operate currency and credit system of the country to its advantage. (b)   To keep reserves with a view to securing monetary stability in India. The RBI can also use qualitative measures to increase or decrease credit availability in the economy.

Who appoints the governor of RBI?

The Reserve Bank of India was nationalized with effect from 1st January, 1949 on the basis of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948. The working of RBI is regulated by the RBI governor appointed by the central government of India and the Governor acts as the main decision-maker in RBI. Headquartered in Mumbai, the Reserve Bank of India (RBI) serves the financial market in various ways. For example, the bank sets the overnight interbank lending rate, known as Mumbai Interbank Offer Rate (MIBOR) and this acts as a benchmark for interest rate–related financial instruments in India.

Since 1957, it maintains gold and foreign exchange reserves of Rs. 200 Cr. Payment and settlement systems play an important role in improving overall economic efficiency. The Payment and Settlement Systems Act of 2007 (PSS Act)[63] gives the Reserve Bank oversight authority, including regulation and supervision, for the payment and settlement systems in the country. In this role, the RBI focuses on the development and functioning of safe, secure and efficient payment and settlement mechanisms. Two payment systems National Electronic Fund Transfer (NEFT) and Real-Time Gross Settlement (RTGS) allow individuals, companies and firms to transfer funds from one bank to another.

Reserve Bank of India (RBI) Objectives, Establishment & Functions

For many years, the Sicca of Murshidabad was, in theory, the standard coin, and the rates of exchange of the various rupees in terms of the Sicca rupee varied, the discount being called the batta. Repo or repurchase rate acts as the benchmark interest rate at which the RBI lends funds to all other banks for a short term. As the repo rate increases, borrowing from RBI tends to become more expensive; hence, customers or the public bears the outcome of high-interest rates. 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.

RBI is the responsible agency for receiving and paying money on behalf of the various government departments. It is advised to the candidates, that for each topic and question, they ought to be laying out an effective preparation strategy. You can first download the notes, and refer to the recommended books for kickstarting your preparation for the exam. The Reserve Bank of India is also known as the Nation’s Central Bank. According to the bank dossiers, it began operations on April 01, 1935. In the following section, we will know more about how the bank came into being.

RBI, or the Reserve Bank of India, is the statutory body that acts as the controlling body of national currency. The main functions of RBI are to manage foreign exchange, issue currency, control inflation, encourage growth, and achieve financial stability. It works to grant and operate the Indian currency, sustain monetary stability, and maintain India’s credit system. One of the major functions of RBI is to create a multi-layered supervisory and systemic regulatory environment that makes policies to flourish the banking sector in the country.

This act permits the RBI to facilitate external trade and payments to boost the health and development of India’s foreign exchange market. The Reserve Bank of India is the country’s central bank and the regulatory organization in charge of overseeing the country’s banking industry. It is in charge of managing the supply of Indian rupees and controlling their issuance. The central bank performs a variety of tasks, including handling foreign exchange, supervising monetary policy, printing currency, serving as a bank for the government, and lending to approved commercial banks. Read more about the Role and Function of Reserve Bank of India in Static GK and in this article.

The Mumbai Interbank Offer Rate (MIBOR) serves as a benchmark for interest rate–related financial instruments in India. Thus, it is clear that RBI is not a typical Cen­tral Bank as is traditionally understood. It regulates not only currency and credit but aids the development of the Indian economy by conducting various types of promotional activities. As the Government’s banker, the RBI provides short-term credit to the Government of India.

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