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Role and Functions of Reserve Bank of India

Role and Functions of Reserve Bank of India

  • The Reserve Bank of India (RBI) is one and only India's central bank, which controls the demand and supply of the Indian rupee.
  • It started its operations on 1st April 1935 under the British Rule with the provisions of the Act of Reserve Bank of India Act in the year 1934.
  • The original share capital was divided into shares of 100 each fully paid, which were under the ownership of private shareholders. RBI was nationalised on 1st January 1949.
  • The RBI plays an important part in the strategically developing the Government of India. RBI consists of 21-member Central Board of Directors including Governor, there are 4 Deputy Governors, 2 Ministry representatives from finance, 10 government-nominated directors, and 4 directors are appointed to represent local boards which have its headquarters at Mumbai, Kolkata, Chennai and the capital, New Delhi.
  • Each of these consists of 5 members who represent regional interests, and the interests of co-operative and indigenous banks. The bank is often referred to by the name Mint Street.
Major functions of the RBI are as follows:
Issue of Notes:
  • The Reserve Bank of India has the self-right to issue currency notes. Ministry of Finance issues one rupee notes.
Banker to the Government:
  • As banker to the government the Reserve Bank manages the needs and issues of the government in terms of banking.
  • It has  to maintain and operate the government’s deposit accounts.
  • Its duty is to collect the receipts and makes payments on behalf of the government.
  • RBI is the member of the IMF (International Monetary Fund) and the World Bank and thus represents the Government of India.
 Custody of Cash Reserves of Commercial Banks:
  • The commercial banks have deposits in the Reserve Bank.
 Custody of Country’s Foreign Currency Reserves:
  • The central bank keeps the custody of the country’s reserves of foreign currency and hence enables itself to solve the problem of crisis during deficits.

 Lender of the Last Resort:
  • The commercial banks go to the central bank in times of emergency in order to overcome financial problems and the central bank, in turn, helps out by solving the problem although it might charge a higher rate of interest.

Developmental and Promotional role of RBI:

The central bank performs a lot of functions. RBI is performing the role of a promoter of the financial system. The functions of the RBI are given as follows:
Financial System: Development :
  • The financial system consists of the financial institutions, financial instruments,and financial markets.
  • The central bank has encouraged the stablishment of banking and non-banking institutions to fulfil to the credit requirements of different sectors of the Indian economy.
Development of Agriculture:
  • The central bank gives special credit to the need of agricultural sector activities.
  •  It has made the Agriculture Refinance and Development Corporation(ARDC) to look into the matter of credit.
Provision of Industrial Finance:
  • Economic development can be done when there is a rapid growth in the industrial sector.
  • Adequate and availability of credit to industries in this is very important.
  • For this, the central bank has set up institutions such as ICICI, IDBI, SIDBI, etc.
Publication of the Reports:
  • The Central Bank publishes its article separately.
  • They collect data on all the sectors of the country.
  • The reports are published by the Central Bank regularly.
  • Weekly reports, Annual Report, Report on Trend and Progress, etc. are published regularly and are made available to public too.