RBI and Its Functions


Reserve Bank of India (RBI)

RBI stands for Reserve Bank Of India and is India’s central banking institution. It came into existence on 1st April 1935 in accordance to Reserve Bank Of India Act 1934 with a capital of rupees 5 crores with the ownership of all the share capital in the hands of non-government shareholders but was nationalized on 1st January 1949  to prevent the centralization of the shares in few hands. Now RBI is a statutory body.

                          RBI headquarters are in Mumbai, Maharashtra and presently headed by Shaktikanta Das. It consists of 21 members’ central board of directors, the Governor, four Deputy Governors; two finance ministry representatives, ten Government nominated directors representing India’s economy and four directors representing local boards (Mumbai, Kolkata, Chennai, and New Delhi ). Each local board consists of five members who represent regional interests. It is a member bank of the Asian Clearing Union and plays an important role in the development strategy of the Government Of India. 

Functions of RBI                          

RBI is the backbone of the Indian economy and performs a lot of functions to keep the country’s economy sound and healthy. Its functions are –

  1. It is the sole issuer of the currency and takes action to control the circulation of fake currency thus maintaining the currency and credit system of the country.
  2. The issuer of banking license where the bank has to obtain a banking license from RBI to conduct banking business in India.
  3. It controls money supply to stabilize the exchange rate, maintain the balance of payment, control inflation and attain financial stability thus strengthening the banking system.
  4. It acts as a banker to the state as well as the central governments by providing short  term loans, servicing the government debt outstanding and nurturing the market for Government’s securities. 
  5. It also acts as a banker’s bank by providing loans to the banks, accepting the deposits of banks and rediscount the bills of banks.
  6. It acts as a lender of last resort as a bank can borrow from it by keeping eligible securities as collateral at the time of need or crisis.
  7. It acts as money supply and controller of money by open market operations, credit ceiling, etc. 
  8.  It acts as a clearinghouse for the settlement of banking transactions thus facilitating the exchange of instruments and processing of payment instructions.
  9. It is the manager of foreign exchange and acts as a custodian of FOREX through FEMA 1999(Foreign Exchange Management Act ).
  10. It is the regulator of the country economy by monitoring different key indicators like GDP, inflation, etc.
  11. Regulator and supervisor of payment and settlement  systems which gives RBI the authority to oversight the functioning of safe, secure and efficient payment and settlement through the Payment And Settlement Act 2007.
  12. It is the publisher of monetary and other data as it maintains and provides all essential banking and other economic data related to economic policies in India.
  13. It acts as a manager to the government securities and represents India in the International Monetary Fund.
  14. RBI has set up the Banking Codes And Standards Board Of India (BCSBI) to measure the performance of banks against codes and standards based on established global practices. 
  15. It also has the authority to look into the working of the non-banking financial institution and implementation of the Deposit Insurance Scheme to protect the deposits of small depositors, in case of a bank failure.

Besides all of the above functions it helps in the development of backward areas, maintaining economic growth and stability, promotion of credit to priority sections including rural and agriculture sector, promotion of export and industrial finance.

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