The Reserve
Bank of India
As the central bank of India, the RBI plays a
crucial role in regulating the country's
monetary and credit systems, maintaining price
stability, and promoting economic growth.
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The RBI Act and Banking Regulation
Act
The RBI Act, 1934 The Banking Regulation Act, 1949
The Reserve Bank of India Act, 1934 The Banking Regulation Act, 1949 provides
established the RBI and defined its powers the legal framework for the supervision
and responsibilities, including the sole and regulation of the banking sector in
authority to issue currency notes and act India, granting the RBI extensive powers
as the central bank of India. to control and guide commercial banks.
Preamble and Objectives
1 Monetary Stability
To regulate the issue of bank notes and maintain reserves with
a view to securing monetary stability in India.
2 Currency and Credit Management
To generally operate the currency and credit system of the
country to its advantage.
3 Modern Monetary Policy
To have a modern monetary policy framework to meet the
challenges of an increasingly complex economy.
4 Price Stability and Growth
To maintain price stability while keeping in mind the objective of growth.
Organizational Structure
Central Board of Composition Local Boards
Directors
The central board The RBI has established
The RBI's affairs are consists of the local boards in four
governed by a central Governor, up to four areas, each with a
board of directors Deputy Governors, and chairperson and other
appointed by the ten directors from members. These local
Government of India. The various fields, as well boards provide advice to
directors are appointed as two government the central board on
or nominated for a officials. matters related to their
period of four years. respective regions.
Traditional Functions
1 Currency Issue
The RBI has the sole authority to issue currency notes in
India, except for one rupee notes and smaller
denominations. It issues these notes against various
securities and assets.
2 Banker to Banks
The RBI acts as the apex monetary institution, guiding and
regulating commercial banks. It controls the volume of
bank reserves and allows them to create credit
accordingly.
3 Banker to Government
The RBI performs various banking functions for the central
and state governments, such as accepting deposits, making
payments, and managing public debt.
Exchange Rate Management
Stabilizing the Rupee
The RBI is responsible for maintaining the stability of the Indian
rupee's external value. It does this by implementing foreign
exchange rate policies and managing the demand and supply of
foreign currencies.
Maintaining Reserves
The RBI holds gold bullion, foreign securities, and other assets as
reserves to support the value of the rupee and meet any adverse
balance of payments situations.
Clearing and Settlement
The RBI provides a clearing house facility to help banks settle
their interbank transactions smoothly and efficiently through its
National Clearing Cell.
Credit Control Functions
Quantitative Controls
The RBI uses tools like bank rate policy, cash
reserve ratio, and open market operations to regulate
the overall volume of credit in the economy.
Qualitative Controls
The RBI also employs selective credit controls and
credit rationing to influence the direction and
allocation of credit in the economy.
Maintaining Price Stability
By regulating the money supply, the RBI aims to
maintain price stability, which is essential for the
country's economic development.
Supervisory Functions
Licensing Bank Inspection NBFI Control Deposit Insurance
The RBI grants The RBI conducts The RBI also has The RBI is
licenses to banks periodic the authority to responsible for
for carrying out inspections and issue directives implementing the
business, including audits of and conduct Deposit Insurance
opening new commercial banks to inspections of non- Scheme to protect
branches and ensure they operate banking financial the deposits of
extension counters. in a prudent institutions. small account
manner. holders.
Promotional and Developmental
Functions
Expanding Banking Supporting Industries Developing Financial
System Markets
The RBI provides
The RBI has set up refinance facilities and The RBI encourages the
various institutions to other support to promote development of financial
promote banking habits the growth of institutions, markets,
and expand the reach of industries, particularly and instruments to
the banking system, such small-scale and export- support the country's
as the Deposit Insurance oriented enterprises. economic development.
Corporation and the
National Bank for
Agriculture and Rural
Development.
The RBI as a Controller of Credit
Maintaining Price Stability
The RBI plays a crucial role in controlling credit to maintain price
stability in the economy, which is essential for sustainable economic
growth.
Regulating Money Supply
The RBI uses various monetary policy tools to regulate the money supply
in the economy, ensuring the appropriate circulation of funds.
Managing Economic Cycles
The RBI's credit control measures help manage the fluctuations in
economic activity and their effects on employment, income, and prices.
Providing Liquidity
The RBI acts as the lender of last resort, providing liquidity to banks
during times of insufficient funds or inflationary pressures.
