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Know Functions and Responsibilities of the Reserve Bank Of India

IndianMoney.com Research Team | Posted On Friday, March 08,2019, 06:19 PM

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Know Functions and Responsibilities of the Reserve Bank Of India

 

 

What Is Reserve Bank Of India?

Reserve Bank of India RBI, is the Central Bank of India. RBI is responsible for framing monetary and credit policies in India. RBI was established way back in 1935 and is headquartered in Mumbai, the financial capital of India.

RBI is headed by a Governor who is the chief executive. RBI Governor is provided with a maximum of four deputy governors and directors of local boards to help him/her run the body.  This panel of Governor, Deputy Governors and Directors is called ‘Central Board of RBI’. The current Governor of RBI is Shaktikanta Das, who is in charge of the office since December 2018.

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SEE ALSO:  Reserve bank of India

Know Functions and Responsibilities of the Reserve Bank Of India

Below mentioned are the major functions and responsibilities of the Reserve Bank of India:

Credit And Monetary Policy

RBI is responsible for framing and implementing monetary and credit policies in India. RBI frames suitable monetary policies citing inflation and/or deflation. RBI regulates credit related transactions with the help of tools like CRR, SLR, REPO rate, reverse REPO rate, bank rate, open market operations and so on.

Managing Currency 

RBI is the only authorized body to issue currency in India. RBI is also authorized to destroy the currency when they are not fit for circulation. The value of currency must be backed by assets of equal value, which enhances public confidence in paper currency.

RBI issues currency in the form of notes and coins in adequate supply to the country in its capacity and maintains sufficient reserves. The Security Printing and Minting Corporation of India Limited SPMCIL, a wholly state owned company, is responsible for printing currency in India. SPMCIL has set up printing presses at Nashik and Dewas. The Bharatiya Reserve Bank Note Mudran Private Limited BRBNMPL, has set up presses at Mysore and Salboni to print notes. For minting of coins, SPMCIL has set up mints at Mumbai, Noida, Kolkata and Hyderabad.

RBI also works on preventing counterfeit notes and coins getting into the system, by regularly upgrading security features of currencies.

Managing Foreign Exchange 

As per the Foreign Exchange Management Act, FEMA, enacted in 1999, the RBI is entrusted with managing foreign exchange reserves in India. The objective is to enable external trade and payment and promote orderly development and maintenance of foreign exchange market in India. India’s foreign exchange reserves as of 1st February 2019 are $400 Billion.

With the increasing integration of Indian economy with the global market due to greater trade and capital investments, the forex market has grown steadily and has become a key segment of the Indian financial market. RBI plays a critical role in regulating and managing this sector. RBI is in charge of managing forex and gold reserves in India.

On any given day, the foreign exchange rate reflects the demand for and supply of foreign exchange arising due to trade and capital transactions. The financial markets department FMD, which functions under the RBI, sells or purchases foreign currency to improve the volatility when there is excess demand for or supply of foreign currency.

SEE ALSO:  Foreign Exchange management

Banker of Banks and Lender Of The Last Resort

The Reserve Bank of India works as a central bank, where the commercial banks operating in India are the account holders and can deposit money. All scheduled banks in India maintain banking accounts with RBI. Commercial banks maintain credit account with RBI. RBI is in charge of controlling the banks’ credit through CRR, bank rate and open market operation tools.  

The RBI works as a banker’s bank to facilitate the clearing of cheques between commercial banks and helps in inter - bank fund transfer. RBI is responsible for supervising and regulating the functions of commercial banks and take suitable action as per needs. RBI is the last resort of banks for providing emergency advances.

Banker to the Central Government and State Governments

The Central and State Governments need a bank to carry out financial transactions smoothly. RBI functions as a banker to the central and state governments to carry out monetary transactions.

RBI as a banker maintains accounts, receives payments and makes payments from these accounts. RBI helps the Government raise money from the public, by issuing bonds and securities that are approved by the government.

Central Clearing House for Payments and Settlement Systems

Payments and settlements play a critical role in improving the economy. The payment and settlements act, enacted in 2007, authorizes RBI, to carry out regulation, supervision of payments and settlements in India. RBI has come up with NEFT and RTGS to facilitate faster clearance of funds. These facilities can be used only to transfer money within India.

Perform Developmental And Promotional Functions

The RBI performs a wide range of promotional functions to facilitate national objectives and industries. The RBI has key tools to perform a wide range of promotional activities like lending to industries related to agriculture, micro and small enterprises, housing, education and so on. RBI has been putting a lot of effort in strengthening and supporting small local and regional banks like RRBs and encourages banks to have more branches in rural areas.

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