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."
It was set up on the recommendations of the HILTON
It was started as Share-Holders Bank with a paid up
capital of 5 crs.
It was established on 1st of April 1935
Initially it was located in Kolkata.
It moved to Mumbai in the year 1937.
Initially it was privately owned.
It was the 1st bank to be Nationalised in 1949.
It has 22 regional offices, most of them in state capitals.
The Key roles of the RBI are…..
Regulator and supervisor of the financial system
Manager of exchange control
Issuer of currency
Banker to the Government
Bank to banks: maintains banking accounts of all
Formulates, implements and monitors the monetary policy.
Objective: maintaining price stability and ensuring adequate flow of credit to
Regulator and supervisor of the financial system:
Prescribes broad parameters of banking operations within which the
country's banking and financial system functions.
Objective: maintain public confidence in the system, protect depositors
interest and provide cost-effective banking services to the public.
Manager of Foreign Exchange
Manages the Foreign Exchange Management Act, 1999.
Objective: to facilitate external trade and payment and promote orderly
development and maintenance of foreign exchange market in India.
Issuer of Currency
Issues and exchanges or destroys currency and coins not fit for circulation.
Objective: to give the public adequate quantity of supplies of currency notes
and coins and in good quality.
Performs a wide range of promotional functions to support national objectives.
Banker to the Government: performs merchant banking function for the central
and the state governments; also acts as their banker.
Banker to banks: maintains banking accounts of all scheduled banks.
Instruments of Credit Control :
Quantitative or General Methods
Qualitative or Selective Methods
Open Market Operation
Change in Cash
Reserve Ratio (CRR)
Statutory Liquidity Ratio
Repo and Reverse
Selective Credit Control
Rationing of Credit
Objective and Reasons for Establishment of RBI
The main objectives for establishment of rbi as the central bank of India were as
To manage the Monetary and credit system of the country
To stabilize internal and external value of rupee
For balanced and systematic development of banking in the country.
For the development of organized money market in the country
For proper arrangement of agriculture finance
For proper arrangement of industrial finance
For proper management of public debt
To establish monetary relations with other countries of the world and
international financial institutions.
For centralization of cash reserves of commercial banks.
To maintain balance between demand and supply of currency
National Housing bank (NHB)
Deposit Insurance and Credit Guarantee Corporation of India (DICGC)
Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL).
National Bank For Agriculture and Rural Development (NABARD)
The reserve Bank of India has recently divested stake in State Bank of India
to the government of India .
RBI also regulates the opening / installation of ATM.
RBI regulates the opening of branches by banks.
It ensures that all the N.B.F.S follow the KNOW YOUR CUSTOMER
Fresh currency notes for ATM are supplied by RBI.
Banker to the Government: Performs all banking function for the central and
state governments and also act as their banker.
The reserve bank of India also regulates the trade of gold. Currently 17 banks
are involved in the trade of gold in India. RBI has invited applications from
more banks for direct import of gold to curb illegal trade in gold and increase
competition in the market.
It issues guidelines and directions for the commercial banks.