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Reserve Bank of India?Different types of bank accounts.


The Reserve bank of India is India’s central bank, which commenced its operations on 1 April 1935 during the British Rule in accordance with the provisions of the Reserve Bank of India Act, 1934.

The Reserve Bank of India is an independent apex monetary authority that also regulates banks and provides important financial services such as storage of foreign exchange reserves, availability of credit, accept deposits from government and banks. Specifically, the RBI performs the following important functions:

Eight Major Functions of the Reserve Bank of India

  1. Issue of bank notes: The Reserve Bank of India  has the sole right to issue currency notes except one-rupee notes, which are issued by the Ministry of Finance.This function of the reserve bank of India has a number of advantages:

(i) it brings uniformity in issue of notes; (ii) it makes possible effective state supervision; (iii) it is easier to control and regulate credit in accordance with the requirements in the economy

  1. Banker to the government:  As banker to the government, the Reserve bank manages the banking needs of the government. It has to maintain and operate the government’s deposit accounts. It collects receipts of the funds and makes payments on behalf of the government. It represents the Government of India as the member of the IMF and the World Bank.

  2. Custodian of cash reserves of commercial banks: The commercial banks hold deposits in the Reserve Bank of India, and the latter has the custody of the cash reserves of the commercial banks.
  3. Custodian of country’s foreign currency reserves: The Reserve Bank has the custody of the country’s reserves of international currency, and this enables the Reserve Bank to deal with crisis connected with adverse balance of payments position.
  4. Lender of last resort: The commercial banks approach the Reserve Bank in times of emergency to tide over financial difficulties, and the Reserve Bank comes to their rescue though it might charge a higher rate of interest.
  5. Central clearance and accounts settlement: Since commercial banks have their surplus cash reserves deposited in the Reserve Bank, it is easier to settle the claim of these banks on each other through entries in the books of the Reserve Bank of India. The clearing of accounts has now become an essential function of the Reserve Bank of India.
  6. Controller of credit: Since credit money forms the most important part of supply of money, and since the supply of money has important implications for economic stability, the importance of control of credit becomes obvious. Credit is controlled by the Reserve Bank of India in accordance with the economic priorities of the government.
  7. Regulator of banks and non-banking financial companies: Opening a bank or a non-banking financial company (NBFC) requires a license from the reserve bank of India. It ensures that financial interest of the depositors is not hampered. It also keeps checks that the banks and NBFCs adhere to capital adequacy norms, etc.


Traditionally, bank accounts are classified into four different types:

  1. Current account is mainly for business persons, firms, companies, public enterprises, etc. and is never used for investment or savings. These deposits are the most liquid deposits and there are no limits for the number of transactions or the amount of transactions in a day. While there is no interest paid on the amount held in the account, banks charge certain service charges on such accounts. The current accounts do not have any fixed maturity as these are on continuous basis.

  2. Savings account is meant for saving purposes. Most of the salaried persons, pensioners, and students use savings account. The advantage of having a savings account is that the banks pay interest for the savings. The savings account holder is allowed to withdraw money from the account as and when required.

The rate of interest ranges from 4% to 6% per annum in India. There is no restriction on the number and amount of deposits. But withdrawals are subjected to certain restrictions. Some banks recommend maintaining a minimum amount to keep it functioning.

Recurring deposit account or RD account is opened by those who want to save a certain amount of money regularly for a certain period of time and earn a higher interest rate. In RD account, a fixed amount is deposited every month for a specified period and the total amount is repaid with interest at the end of the particular fixed period.

The period of deposit is minimum 6 months and maximum 10 years. The interest rates vary for different plans based on the amount one has to save and the period of time for which it is deposited. No withdrawals are allowed from the RD account. However, the bank may allow closing of the account before the maturity period.

These accounts can be opened in single or joint names. Reserve bank of India also provide nomination facility to RD account holders.

Fixed deposit account (FD account) holds a particular sum of money in a bank for a specific period. It is a one-time deposit and one-time take away (withdraw) account. The money deposited in this account cannot be withdrawn before the expiry of period.

However, in case of need, the depositor can ask for closing the fixed deposit prematurely by paying a penalty. The penalty amount varies with banks. A high interest rate is paid on fixed deposits. The rate of interest paid for fixed deposits vary according to the amount, period, and also from bank to bank.

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Deposits are liabilities of banks

The deposits made into a bank are the liabilities of the bank. Fixed and recurring account deposits constitute time liabilities of the bank because banks are required to return the deposits made in these accounts after the expiry of the fixed period of time.

On the other hand, savings and current account deposits constitute demand liabilities of the bank because banks are required to return the deposits made in these accounts whenever a depositor demands return of funds.

Indian Economy

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