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Role of RBI in Indian Economy - Structure and Functions of RBI Research Team | Posted On Tuesday, March 10,2020, 11:34 AM

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Role of RBI in Indian Economy - Structure and Functions of RBI



The Indian banking system is one of the largest and most extensively accessed sectors in the country. Apart from serving as the backbone of the economy, the system is also responsible for ensuring transparency in the monetary transactions and implementation of various financial reforms. The banking system is governed by an apex body called the Reserve Bank of India which is responsible for governing, managing and monitoring the functioning of the Indian banking system.

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Here is everything you must know about the Reserve Bank of India:

What is the Reserve Bank of India (RBI)?

The Reserve Bank of India is the central bank that on a broader note monitors and governs the complete financial system. Established in the year 1935, this apex body was recommended by the Hilton-Young commission and works under the Reserve Bank of India Act, 1934.

The Reserve Bank of India serves several objectives as stated in its Preamble. They are:

  1. Undertake initiatives in the financial sector.
  2. Supervise the initiatives for the betterment of the financial sector.
  3. To regulate the issuance of banknotes.
  4. To help secure the monetary stability in the country.

See Also: Top 7 Functions of the Reserve Bank of India

To keep pace with the economic changes and challenges by optimizing and modernizing the monetary policy.  

The RBI is under complete ownership and operation of the government of India and is managed by a 21-member central board of directors. These board members are appointed under the Reserve Bank of India Act by the government of India. The RBI has its headquarters in Mumbai since 1937 and operates through a network of 19 regional offices and 9 sub-offices. Mr. Shaktikanta Das is the current governor of RBI. 

What is The Organizational Structure of The Reserve Bank of India?

The Reserve Bank of India follows a strict hierarchical structure which is headed by the Governor along with a team of four deputy governors. The hierarchy is as follows:











The central board of directors is appointed by the government of India. It comprises of:

Official Directors: A governor along with a team of 4 Deputy Governors are appointed for a stint of 4 years

Non-official Directors: Two government officials along with 10 Directors from diversified fields are appointed

See Also: Reserve Bank of India (RBI)

What are the Functions of the Reserve Bank of India?

The Reserve Bank of India performs several functions across different levels. The major functions of the Reserve Bank of India are:

Monetary Functions

As the RBI is the supreme monetary authority in the country, it is responsible for:

Formulation and implementation of the National Monetary Policy.

Maintenance of stability in price across various sectors while keeping up with the growth objective.

1. Supervisory and Regulatory Functions

Being the apex financial body in the country, the Reserve Bank of India also performs the supervisory and regulatory functions:

  1. Setting benchmarks and parameters for banks regarding financial operations to ensure the smooth, transparent and consistent working of all banks.
  2. Keeping in the mind the best interests of the general public, cost-effective and economic banking system is framed.

  Forex or Foreign Exchange Management

  1. The Reserve Bank of India also manages and supervises the Foreign Exchange Management Act, 1999.
  2. Make provisions for the development of Foreign Exchange Trade market to facilitate the foreign trade.

2. Developmental Role

  1. The Reserve Bank of India makes rules and regulations that help promote the functions of the national banking system and the linked entities.
  2. It strives to ensure the financial objectives of the country are met and the banks perform the functions as expected.

See Also: Monetary Policy of Reserve Bank of India

3. Issuance of Currency

  1. The Reserve Bank of India ensures that the optimum amount of currency is pushed into the system and also holds the responsibility to destroy and change the currency if required.
  2. RBI ensures that the currency and coins are supplied in adequate amount and quality.

4. Regulator and supervisor of payment and settlement act.

5. The Reserve Bank of India also serves as the keeper of payment and settlement act, 2007 and regulates the payment systems across the nation.

6. RBI ensures the effectiveness and transparency of the payment system across the country.

7. Other Related Functions

  • The RBI also performs other related functions like providing consultation to banks and other financial institutions on sensitive and sophisticated financial matters.
  • the Reserve Bank of India also serves as the banker of banks and provides funds to them at various rates
  • the Reserve Bank of India also serves as the Chief banker hence maintaining the banking operations and accounts of all scheduled banks across the nation.

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