■ The Reserve Bank of India was established on April 1,
1935 in accordance with the provisions of the Reserve
Bank of India Act,1934.
■ Nationalised on 1st January,1949.
■ Regulator of banking system.
■ Controller of monetary policy.
■ Dr. Urjit R. Patel is the present governor accompanied by 4
deputy directors –
– Shri S. S. Mundra,
– Shri N. S. Vishwanathan,
– Dr. Viral V. Acharya and
– Shri B.P. Kanungo.
Functions Of RBI:
■ Monetary authority
■ Regulator and supervisor of financial system
■ Manager of foreign exchange
■ Issuer of currency
■ Banker to government
■ Banker to banks
■ Lender of last resort
■ Regulator of payment system
■ Controller of credit.
■ Developmental functions
■ Formulates, implements and monitors the monetary policy.
■ Policy formation twice a year.
■ It reviews the policy every quarter as well.
■ The main objectives of monitoring monetary policy are:
– Inflation control
– Control on bank credit
– Interest rate control
Regulator and supervisor of the
■ As regulator one of the main functions is Capital adequacy,
income recognition norms and asset provisioning norms.
■ Lays out parameters of banking operations within which the
country’s banking and financial system functions for-
– maintaining public confidence in the system,
– protecting depositors’ interest,
– providing cost-effective banking services to the general
Manager of Foreign Exchange:
■ Manages the Foreign Exchange Management Act, 1999.
■ To facilitate external trade and payment and promote
orderly development and maintenance of foreign
exchange market in India.
■ 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
Issuer of currency:
■ Issues and exchanges or destroys currency and coins not fit for
■ Objective: to give the public adequate quantity of supplies of
currency notes and coins and in good quality.
■ This concentration of notes issue function with the Reserve
Bank has a number of advantages:
(iii) easier to control and regulate credit
(iv) faith of the public
Banker to the Government:
■ Performs merchant banking function for the central and
the state governments.
■ Manages the banking needs of the government.
■ Maintain and operate the government’s deposit accounts.
■ Receipts of funds and makes payments on behalf of the
■ It represents the Government of India as the member of
the IMF and the World Bank.
Banker to banks:
■ Maintains banking accounts of all scheduled banks.
■ The commercial banks hold deposits in the Reserve Bank
and the latter has the custody of the cash reserves of the
■ Central Clearance and Accounts Settlement
■ Acts as a clearing house- settlement of interbank claims.
Computerised clearing through SBI offices.
Lender of Last Resort:
■ The commercial banks approach the Reserve Bank in
times of emergency to tide over financial difficulties.
■ Banks meet their shortfall of cash by approaching the RBI.
■ Called as last resort because all the other sources have
■ Reserve bank might charge a higher rate of interest.
Regulator and supervisor of the
■ Authorises setting up of payment systems;
■ Lays down standards for working of the payment system;
■ policies for movement from paper-based payment
systems to electronic modes of payments.
■ Setting up of the regulatory framework of newer payment
■ Enhancement of customer convenience in payment
■ Improving security and efficiency in modes of payment.
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 in accordance
with the economic priorities of the government.
■ RBI controls credit through various quantitative and
qualitative tools like bank rate, repo rate and reverse repo
■ Granting license to banks.
■ Inspect and make enquiry or determine position in respect of
matters under various sections of RBI and Banking Regulation
■ Implementation of Deposit Insurance Scheme.
■ Periodical review of review of the work of commercial banks.
■ Giving directives to commercial banks.
■ Ensuring the health of financial system through on-site and
■ Performs a wide range of promotional functions to
support national objectives.
■ This consists of such institutions as the
– Deposit Insurance and Guarantee Corporation (DIGC) (to
safeguard the interests of depositors against bank failure),
– the Agriculture Refinance and Development Corporation
(to meet the needs of agriculturists),
– IFCI, SFCs, IDBI, UTI (to meet the long and medium-term
needs of industry), etc.
■ This has resulted in curbing the activities of
moneylenders in the rural economy.
RBI also controls the following ratios:
■ Repo rate- lending rate of RBI to banks for short term; CR-6.25%
■ Reverse repo rate- rate at which RBI borrows from banks for
short term; CR-6%
■ Cash reserve ratio-proportion of total deposits to be kept in
form of cash with RBI; CR-4%
■ Statuary liquidity ratio- minimum proportion of demand and
time deposits; CR- 20%
■ Marginal Standing Facility- special window for banks to borrow
from RBI against approved government securities; CR-6.5%