FUNCTION OF RBI AND ITS RELATIONSHIP WITH GOVT.

1. ABHISHEK SAHA
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2. Established in April 1935 under
the RESERVE BANK OF INDIA
ACT 1934.
It was nationalised in 1949 and
since then fully owned
by Government Of India.
Headquarters in Mumbai ,
Maharashtra.
It’s present governor is
Shaktikanta Das.

3. The preamble of the Reserve Bank of India describes 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.”
PREAMBLE

4. Financial supervision.
Formulate Monetary policy.
Issue of Currency.
Banker to government.
Banker to bank.
Managing foreign exchange.
Development role.
Collection and publication of data.

5. FINANCIAL SUPERVISION:
 The RBI undertake consolidated supervision of the financial sector comprising commercial banks,
financial institutions, and non-banking finance companies.
 Its objectives are to maintain public confidence in the system, protect depositors' interest and
provide cost-effective banking services to the public.
 RBI controls the monetary supply, monitors economic indicators like the GDP and has to decide the
design of the rupee banknotes as well as coins.
FORMULATE MONETARY POLICY :
 Maintain price stability by ensuring adequate flow of credit in the economy.
 Control the Repo rate and reverse repo rate.
 RBI controls SLR and CLR. (CRR is the ratio of total deposit that banks need to keep as a reserve
with RBI in form of cash whereas SLR is the ratio of compulsory ratio of deposit that bank has to
maintain in form of cash, gold, other securities prescribe by RBI)

6. ISSUE OF CURRENCY :
Design , printing and distribution of currency notes.
The bank also destroys banknotes when they are not fit for circulation.
BANKER TO GOVERNMENT :
As a banker to the Govt. of India, the RBI maintains its accounts,
receive payments into and make payments out of these accounts.
The RBI also helps the Govt. to raise money from the public via
issuing bonds and government-approved securities.

7. BANKER TO BANK :
RBI maintains banking accounts of all scheduled banks.
It is the duty of the RBI to control the credit through the CRR,SLR and bank rate.
 helps the inter-bank transfer of funds.
It acts as the lender of the last resort by providing emergency advances to the
banks.
MANAGING FOREIGN EXCHANGE :
One of the objective of RBI is to facilitate external trade and payment and
promote orderly development and maintenance of foreign exchange market in
India.
RBI buys and sells foreign currency to maintain the exchange rate of Indian
currency vs foreign currency.
It act as a custodian and manages the Foreign Exchange Management
Act,(FEMA) 1999.

8. DEVELOPMENT ROLE :
Promote savings through proper interest rate policy.
RBI work towards strengthening and supporting small local banks and encourage
banks to open branches in rural areas to include large section of society in banking
net.
RBI provides special attention for the credit need of agriculture and allied activities.
It also provides credit to small , medium and large industrial sector.
RBI tries to provide essential training to the banking staffs.
COLLECTION AND PUBLICATION OF DATA :
RBI has separate Departments of Statistics for collecting , compiling and analyzing
statistical information and conducting research related to banking and other
financial sector of the economy.

9. RELATION BETWEEN RBI AND GOVERNMENT :
RBI AS A BANKER TO GOVT. :
1. Operates and maintains government accounts.
2. Receives payments made to the government.
3. Pays on behalf of the government.
4. Advises the government for financial matters.
5. Manages loan operation of the government.
6. Works on behalf of the government as a member in IMF and World Bank

10. RECENT ISSUES OF RBI VS GOVERNMENT :
The govt. Wanted to :
1. Dilute the Prompt Corrective Action (PCA) framework which restricts the weak
banks from disbursing loans
2. lend to micro, small and medium enterprises (MSMEs) .
3. Set up a separate regulator for the payment banks.
 It's not these issues that the tussle has caught the limelight but the mention of
section 7 of the RBI act by the government.
 As per this section govt. can give written directives to RBI and once invoked the
RBI has to no other way but to follow these directives .
 The mention of Section 7 in the RBI act itself is indicative of the fact that RBI's
autonomy is limited.

11. RECENT FUND TRANSFER FROM RBI TO GOVERNMENT :
The RBI board accepted the recommendations of the Bimal Jalan
committee and has decided to transfer Rs 1,76,051 crore to the
government.
This is broken as Rs 1,23,414 crore as surplus for year 2018-19 and
another Rs 52,637 crore of excess provisions identified by the committee
as per the revised Economic Capital Framework (ECF).
Many economists have termed the move as a lifeline for the
government, which is exploring options to revive economic growth amid
a period of sluggish consumer demand and weak investments.

12. RBI plays an important role in economic development in India.
It helps in controlling inflation in the economy.
RBI maintains the cash flow in the econmoy.
The government should allow RBI to work independently.

13. REFERENCE :
www.rbi.org.in
The Economic Times
Business-Standard
Wikipedia