FUNCTIONS OF RBI

TEAM-3
JENIFER
VISHAL
ROOPAN
simon
SATHAPPAN
SAM STANES
KOWSHIKA
overview
The following points highlight the seven main functions of the RBI.
The functions are:
1. Monopoly of Note Issue
2. Banker’s Bank
3. Banker to the Government
4. Controller of Credit
5. Exchange Management and Control
6. Miscellaneous Functions
7. Promotional and Developmental Functions
Monopoly of note issue
Like any other cen­tral bank, the RBI acts as a sole currency authority 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.

One- rupee notes and coins and small coins are issued by the Government of India. In
actuality, the RBI also issues these coins on behalf of the Government of India. At present,
notes of denominations of rupees two, five, ten, twenty, fifty, one hundred and five hundred
are issued by the RBI.
Prior to 1956, the principle of note issue of the RBI was based on proportional reserve
system. This system was replaced by the minimum reserve sys­tem in 1956 under which the
RBI was required to hold at least Rs. 115 crores worth of gold as back­ing against the
currency issued.

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.
Bankers bank
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 pe
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 RBI provides financial assistance to com­mercial banks and State cooperative banks through
rediscounting of bills of exchange. As the RBI meets the need of funds of commercial banks, the
RBI func­tions as the Tender of the last resort’.

The RBI has been empowered by law to super­vise, regulate and control the activities of commer­cia
and cooperative banks. The RBI periodically in­spects banks and asks them for returns and neces­sar
information.
Banker to government
The RBI acts as the banker to the government of India and State Governments (except Jammu
and Kashmir). As such it transacts all banking business of these Govern­ments.
The RBI:
(i) Accepts and pays money on behalf of the Government.
(ii) It carries out exchange remittances and other banking operations.

As the Government’s banker, the RBI provides short-term credit to the Government of India. This
short-term credit is obtainable through the sale of treasury bills. Not only this, the RBI also
provides ways and means of advances (repayable with 90- days) to State Government. It may be
noted that the Central Government is empowered to borrow any amount it likes from the RBI.

The RBI also acts as the agent of the Govern­ment in respect of membership of the IMF and
World Bank.
Furthermore, the RBI acts as the adviser of the Government not only on banking and financial
mat­ters but also on a wide range of economic issues (like financing patterns, mobilisation of
resources, insti­tutional arrangements with regard to banking and credit matters, arrangements
with regard to bank­ing and credit matters, international finance) etc.
Credit controller
The RBI controls the total supply of money and bank credit to
sub serve the country’s interest. The RBI controls credit to en­sure
price and exchange rate stability.

To achieve this, the RBI uses all types of credit control instru­
ments, quantitative, qualitative and selective. The most
extensively used credit instrument of the RBI is the bank rate.
The RBI also relies greatly on the selective methods of credit
control. This function is so important that it requires special
treatment.
exchange management control
One of the essential central banking functions performed by the Bank is that of
maintaining the external value of rupee. The external stability of the currency is closely
related to its internal stability the inherent economic strength of the country and the way
it con­ducts its economic and monetary affairs.

Domestic, fiscal and monetary policies have, therefore, an im­portant role in maintaining
the external value of the currency. Reserve Bank of India has a very impor­tant role to
play in this area.

The RBI has the author­ity to enter into foreign exchange transactions both on its own
account and on behalf of the Govern­ment.

The official external reserves of the country consist of monetary gold and foreign assets
of the Reserve Bank, besides SDR holdings. The Reserve Bank, as the custodian of the
country’s foreign ex- change reserves, is vested with the duty of managing the
investment and utilisation of the reserves in the , most advantageous manger.
Miscellaneous function
The RBI collects, collates and publishes all monetary and
banking data regularly in its weekly statements in the RBI
Bulletin (monthly) and in the Report on Currency and
Finance (annually).
promotional and
developmental function
Apart from these traditional function, the RBI performs various activities of
promotional and developmental nature. It attempts to mobilise savings for
productive purposes. This is done in various ways. For instance, RBI has helped
a lot in building the huge financial infrastructure that we see now.

‘This consists of such institutions as the Deposit Insurance Corporation (to

safeguard the interests of depositors against bank failure), the Agricultural Re­
finance and Development Corporation (to meet the needs of agriculturists),
IFCI, SFCs, IDBI, UTI (to meet the long and medium term needs of industry),
etc.

As for cooperative credit movement, the RBI’s performance in really

commendable. This has re­sulted in curbing the activities of moneylenders in the
rural economy.
Thus, it is clear that RBI is not a typical Cen­tral
Bank as is traditionally understood. It is some­
thing more than a Central Bank. It regulates not
only currency and credit but aids the
development of the Indian economy by
conducting various types of promotional
activities. As such, in RBI we see many
activities combined into one.
Thank you 