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Functions of RBI as a Central Bank of India 

Functions of RBI as a Central Bank of India 

Bank of Issue

  • The RBI formulates, implements, and monitors the monetary policy. Its main objective is maintaining price stability and ensuring adequate flow of credit to productive sector.

Regulator-Supervisor of the financial system

  • RBI prescribes broad parameters of banking operations within which the country’s banking and financial system functions.
  • Their main objective is to maintain public confidence in the system, protect depositor’s interest and provide cost effective banking services to the public.

Manager of exchange control

  • The manager of exchange control department manages the foreign exchange, according to the Foreign Exchange Management Act, 1999.
  • The manager’s main objective is to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Issuer of currency

  • A person who works as an issuer, issues and exchanges or destroys the currency and coins that are not fit for circulation. His main objective is to give the public adequate supplies of currency notes and coins in good quality.
  • Developmental role: The RBI performs a wide range of promotional functions to support national objectives such as contests, coupons, maintaining good public relations and many more.

Related functions

  • There are also some other functions related to the above mentioned main functions. They are as a banker to the government, banker to banks etc.
  • Banker to government performs merchant banking function for the central and the state governments; and also acts as their banker. Banker to banks maintains banking accounts of all scheduled banks.

Controller of Credit

  • RBI holds the cash reserves of all the scheduled banks. It controls the credit operations of banks through quantitative and qualitative controls.
  • It controls the banking system through the system of licensing, inspection and calling for information. It acts as the lender of the last resort by providing rediscount facilities to scheduled banks.

Supervisory Functions

  • In addition to its traditional central banking functions, the Reserve Bank performs certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India.
  • The Reserve Bank Act 1934 and the banking regulation act 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction and liquidation.
  • The RBI is authorized to carry out periodical inspections of the banks and to call for returns and necessary information from them.
  • The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation.

Promotional Functions

  • With economic growth assuming a new urgency since Independence, the range of the Reserve Bank’s functions has steadily widened.
  • The bank now performs a variety of developmental and promotional functions, which, at one time, were regarded as outside the normal scope of central banking.
  • The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and establish and promote new specialized financing agencies.

Scheduled Banks    [Functions of RBI as a Central Bank of India ]

  • Scheduled Banks in India constitute those banks which have been included in the second schedule of RBI Act 1934.
  • “Scheduled Banks in India” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank.
  • For the purpose of assessment of performance of banks, the Reserve Bank of India categorizes those banks as public sector banks, old private sector banks, new private sector banks and foreign banks, i.e. private sector, public sector, and foreign banks come under the umbrella of scheduled commercial banks.

Regional Rural Bank

  • The government of India set up Regional Rural Banks (RRBs) on October 2, 1975. The banks provide credit to the weaker sections of the rural areas, particularly the small and marginal farmers, agricultural labourers, and small entrepreneurs.
  • Initially, five RRBs were set up on October 2, 1975. The total authorized capital was fixed at Rs. 1 Crore which has since been raised to Rs. 5 Crores.
  • There are several concessions enjoyed by the RRBs by Reserve Bank of India such as lower interest rates and refinancing facilities from NABARD like lower cash ratio, lower statutory liquidity ratio, lower rate of interest on loans taken from sponsoring banks.
  • The RRBs are under the control of NABARD. NABARD has the responsibility of laying down the policies for the RRBs, to oversee their operations, provide refinance facilities, to monitor their performance and to attend to their problems.

Commercial banks

  • These dominate the Banking industry; offer a full range of services for individuals, businesses, and governments. These banks come in a wide range of sizes, from large global banks to regional and community banks.

Global banks   [Functions of RBI as a Central Bank of India ]

  • They are involved in international lending and foreign currency trading, in addition to the more typical banking services.
  • Regional banks have numerous branches and automated teller machine (ATM) locations throughout a multi-state area that provide banking services to individuals.
  • Banks have become more oriented towards marketing and sales. As a result, employees need to know about all types of products and services offered by banks.

Community banks

  • These are based locally and offer more personal attention, which many individuals and small businesses prefer. In recent years, online banks—which provide all services entirely over the Internet—have entered the market, with some success.  Functions of RBI as a Central Bank of India
  • However, many traditional banks have also expanded to offer online banking, and some formerly Internet-only banks are opting to open branches.

Credit unions

  • These are another kind of depository institution. Most credit unions are formed by people with a common bond, such as those who work for the same company or belong to the same labour union or church.
  • Members pool their savings and, when they need money, they may borrow from the credit union, often at a lower interest rate than that demanded by other financial institutions.

Federal Reserve Banks

  • These are Government agencies that perform many financial services for the Government.
  • Their chief responsibilities are to regulate the banking industry and to help implement our Nation’s monetary policy so our economy can run more efficiently.  Functions of RBI as a Central Bank of India


Indian Economy

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