Learning Objectives
Introduction to RBI
Preamble
The Key Functions of RBI
Introduction
Reserve Bank of India (RBI) is the Central Bank Of India. It was
established in “1st April 1935” under the “Reserve Bank of
India Act 1934”.
Its headquarter is at Mumbai (Maharashtra).
Main objective of RBI is to maintain the nations monetary and
financial stability.
It was set up on the recommendations of the “Hilton Young
Commission”.
It is also called as Royal Commission on Indian Currency and Finance.
It was started as Share-Holders Private owned Bank with a paid up
capital of 5 crores.
Since nationalization in 1949, the Reserve Bank is fully owned by the
Government of India
It has 28 regional offices, most of them in state capitals.
Its affairs are governed by the Central Board of Directors
appointed by the Government of India.
Central Office of RBI is initially located in Calcutta,
Permanently moved to Mumbai in 1937.
The RBI also acted as Burma's (now Myanmar) central bank
until April 1947.
After the Partition of India in August 1947, the bank served as
the central bank for Pakistan until June 1948.
Preamble
The preamble of the Reserve Bank of India describe the basic functions of the
Reserve Bank as
"to regulate the issue of Bank notes and keeping of reserves with a view to
securing monetary stability in India and generally to operate the currency and
credit system of the country to its advantage; to have a modern monetary
policy framework to meet the challenge of an increasingly complex economy,
to maintain price stability while keeping in mind the objective of growth.“
Functions of RBI Issuer of Currency
Banker to Government
Monetary Functions
Banker to Bank
Manager of Foreign Exchange
Control of Credit
RBI Regulator of Payment and Settlement
Systems
Collection and Publication of Data
Non- Monetary
Regulatory and Supervisory
Functions
Development and Promotions
Detection of Fake Currency
Monetary Functions
RBI is the Main monetary authority of the country.
It formulates, implements and monitors the monetary policy as well
as it has to ensure an adequate flow of credit to productive sectors.
1. Issuer of Currency
Reserve Bank of India has the sole right to issue the currency notes except
one rupee notes which are issued by Government of India, Ministry of
Finance.
Design, prints and distributes the currency.
The bank destroys currency and coins not fit for circulation.
Ensuring an adequate supply of clean and genuine notes.
• There are four printing presses to print currency notes by RBI.
They are at Dewas in Madhya Pradesh, Nasik in Maharashtra,
Mysore in Karnataka, and Salboni in West Bengal.
• Coins are minted by the Government of India. The Reserve Bank
is the agent of the Government for distribution, issue and
handling of coins.
• Four mints are in operation: Mumbai, Noida, Kolkata, and
Hyderabad.
[Link] To Government
RBI plays a key role in managing the government’s financial transactions.
Like individuals, businesses and banks, governments need a banker to
carry out their financial transactions in an efficient and effective manner.
As a banker to the central and state government, the Reserve Bank
maintains its accounts, receives money into and makes payments out of
these accounts and facilitates the transfer of government funds. It advises
Government on all monetary matters and also provides Ways & Means
advances.
[Link] To Bank
Like individual consumers, banks need their own mechanism to
transfer funds and settle inter-bank transactions such as borrowing
from and lending to other banks and customer transactions.
As the banker to banks, the Reserve Bank fulfils this role.
Enables the smooth, swift and seamless clearing and settlement of
inter-bank obligations.
Providing an efficient means of funds transfer for banks.
Enabling banks to maintain their accounts for purpose of
statutory reserve requirements and maintain transaction balances.
It keeps deposits of commercial banks and acts as lender of last
resort by providing financial assistance in various ways.
[Link] of Foreign Exchange
It acts as a custodian and Manages the Foreign Exchange
Management Act, (FEMA) 1999.
RBI buys and sells foreign currency to maintain the exchange rate
of Indian Rupee v/s foreign currencies like the US Dollar, Euro,
Pound and Japanese yen.
The Reserve Bank plays a key role in the regulation and development of the
foreign exchange market and assumes three broad roles relating to foreign
exchange:
• Regulating transactions related to the external sector and facilitating the
development of the foreign exchange market
• Ensuring smooth conduct and orderly conditions in the domestic foreign
exchange market
• Managing the foreign currency assets and gold reserves of the country
[Link] of Credit
Credit control is a major weapon of the RBI used to control Demand
& Supply of money in the economy.
RBI can fix interest rates (including Bank Rate) and also exercise
selective credit controls in order to control inflation and money supply
for ensuring growth of the economy & ensuring price stability.
Various methods such as change in cash reserve ratio, Statutory
Liquidity Ratio, stipulation of margin on securities, directs
credit guidelines etc. are used for this purpose.
Credit is controlled by the Reserve Bank in accordance with the
economic priorities of the government.
6. Regulator of Payment and Settlement Systems:
Payment and settlement systems play an important role in
improving overall economic efficiency.
In India there are several payments systems like ECS, Credit
Card, Debit Card, RTGS, NEFT, IMPS and UPI. All these
payments system are covered by Payment and Settlement
Systems Act, 2007.
The overall objective of RBI is to provide fast, safe and
efficient payment system for the public.
ii. Non monetary Functions
Besides performing the traditional functions, the Reserve Bank of
India also perform the following functions:
[Link] and publication of data
[Link] and Supervisory
[Link] and Promotions.
[Link] of fake currency
[Link] and Publication of Data
It gathers and analyses the data of banking, currency, foreign
exchange reserves to make the policy decisions. It publishes the
Reserve Bank of India Bulletin.
[Link] and Supervisory
The RBI Act & the Banking Act have both conferred
extensive powers of regulations & supervisions to the RBI
over banks to check malpractices & protect interests of the
investors.
Reserve Bank Of India
Schedule Banks Non-Schedule Banks
Commercial Banks Co-operative Banks
Public Sector Banks Private Sector Banks Foreign Banks Regional Rural
Banks Urban Co-op
Ex:SBI,BOI,PNB Ex:Axis bank,Yes bank Ex:RBS,AFM Ex:APGVB,APGB
Rural Co-op
[Link] And Promotion
The RBI has been aiding for development, promoting savings &
banking habits. Development of the institutional agriculture &
other rural activities has been an area of focus right from its
inception.
4. Detection of Fake Currency
RBI Provides information about identifying fake currency.
To curb the counterfeit money problem in India, RBI has launched
the website to raise awareness among masses about fake banknotes
in the market.