Reserve Bank of India was established in 1935. It is the central bank of India. The following are the main objectives of RBI :
- To manage and regulate foreign exchange.
- To build a sound and adequate banking and credit structure.
- To promote specialized institutions to increase the term finance to industry.
- To give support to government and planning authorities for the economic development of the country.
- To control and manage the banking system in India.
- To execute the monetary policy of the country.
Functions of Reserve Bank of India:
Issue of currency note
RBI is the sole authority for the issue of currency notes in India except one rupee coin, one rupee note and subsidiary coins. These notes are printed and issued by the issue department.
Banker to the Government
RBI acts as the banker and agent of the government. It gives the following services:
a) It maintains and operates the government cash balances.
b) It receives and makes payments on behalf of the government.
c) It buys and sells government securities in the market.
d) It sells treasury bills on behalf of the government.
e) It advises the government on all banking and financial matters such as financing of five year plans, balance of payments etc.,
f) It acts as the agent of the government in dealings with International Monetary Fund, World Bank International finance Corporations, EXIM Banks etc.,
As per the Banking Regulation Act 1949,every bank has to keep certain minimum cash balance with RBI. This is called as Cash Reserve ratio. The scheduled banks can borrow money from the reserve bank of India on eligible securities and by rediscounting bills of exchange. Thus it acts as bankers’ bank.
Controller of Credit
RBI controls money supply and credit to maintain price stability in the country. It controls credit by using the following methods:
Quantitative Credit Control Methods
- Bank Rate
- Open Market Operations
- Variable Statutory reserve Ratio
Qualitative Control Methods
- Fixation of Margins
- Regulation of consumer credit
- Direct action
- Rationing of credit
- Moral Suasion
If you want to know more about credit control methods, we may recommend a further reading on Credit control methods by the Reserve Bank of India
Custodian of Foreign Exchange reserves
RBI controls the foreign exchange reserves and exchange value of the rupee in relation to other country’s currencies. Currencies should be exchanged only with RBI or its authorized banks.
Publication of data
It collects data related to all economic matters such as finance, production, balance of payments, prices etc. and are published in the form of reports, bulletins etc.
Bank of Central Clearance
The central bank of India acts as a bank of central clearance in settling the mutual accounts of commercial banks. If there is no RBI branch to do this service, the State Bank of India discharges these functions.
Promotional and Developmental Functions
It provides finance for the development of Agriculture, industry and export. RBI also gives credit to weaker sections and priority sectors at concessional rate of interest. It takes an active part in developing organized bill market to provide rediscounting facilities to commercial banks and other financial institutions. It helps for the development and regulation of banking system in the country. The RBI has increased the banking facilities to the remote corners of the country through lead bank scheme. It has helped in promoting the financial institutions such as IDBI, IFCI, ICICI, and SIDBI etc.