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Top 7 Functions of the Reserve Bank of India Research Team | Posted On Wednesday, January 29,2020, 05:25 PM

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Top 7 Functions of the Reserve Bank of India



The Reserve Bank is a statutory body and the central bank of the country. It was established in the Year 1935 with the provision of Reserve Bank of India Act 1934. Many people believe the RBI is the apex body that only functions to control the working of the banks. Contrary to popular beliefs the RBI performs a host of other functions as well. The RBI is a government institution and is a regulatory body. It holds immense power and formulates policies and guidelines for the smooth functioning of the economy. It also works for overall economic growth and maintaining financial stability in the country.

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Top 7 Functions of the Reserve Bank of India

Here is a list of the top 7 functions performed by the RBI as the apex bank in India:

The Monopoly to Issue of Currency Notes:

Since the RBI is the apex bank of India, the government has authorized it with the power to issue currency notes. Thus the power to issue currency notes and regulates its distributions in sections 22 of the Reserve Bank Act. There are separate facilities to issue coins and currency notes. The mints are the facilities where the coins are issued whereas the issuing department is responsible for issuing currency notes. The RBI actively monitors and periodically upgrades features of currency and prevents it from counterfeiting.

See Also: Know Functions and Responsibilities of the Reserve Bank Of India

Banker to the Government:

The second important function performed by the RBI is acting as the banker, agent and advisor to the central and the state government. The RBI carries out following functions as the government’s banker:

  • The RBI manages the public debt of the government. It receives and makes payment on behalf of the central government.
  • It is an independent body that enables the government to monitor and regulate the economy and thus control the flow of money in the economy.
  • The RBI issues bonds and government approved securities on behalf of the government.
  • It collects taxes and Provides short term loan and foreign exchange resources to the government.
  • The RBI maintains the accounts of various government departments and helps the government to represent itself as a member of the IMF and World Bank.

See Also: Monetary Policy of Reserve Bank of India

Acts as the Banker’s Bank:

One of the main functions of the RBI is that it acts as the banker’s bank. Thus it is the banker to the commercial and private banks in the country. The RBI has laid guidelines to regulate the money supply, level of inflation and liquidity in the country. The RBI lends money to these commercial banks and all banks must maintain accounts and statutory reserve requirements with the RBI.  

Controller of Credit:

The RBI as the apex bank of the country also functions as the controller of credit in the economy. It uses two methods to control credit control i.e. the quantitative and the qualitative measures. Credit control impacts the economy and helps in regulating inflation, controlling prices of goods and establishes financial stability. The RBI mainly uses such measures to stabilize the economy and boost its growth.

Acts as the Custodian of the Foreign Exchange Reserve:

The reserve bank of India is appointed as the custodian of the country’s reserves of foreign currencies. It allows the government to maintain sufficient foreign exchange reserve which in turn maintains foreign exchange rates. Thus the government can maintain stability in the foreign exchange market and money market in the country. It facilitates the buying and selling of foreign currency and deals with the crisis of adverse balance of payments situations.

See Also: All You Need To Know About Central Banking

Clearing House Functions:

The RBI also performs the clearing house functions for schedules banks which maintain statutory accounts with the RBI. Since commercial banks are required to maintain statutory reserves with the RBI, so the RBI helps the commercial banks to settle the claim of other banks easily. The clearing house function has now become an important part of the RBI. The Reserve Bank of India has its clearinghouse offices in 14 places in India.

Promotional and Developmental Functions of RBI:

Apart from the traditional banking functions the RBI also undertakes promotional and developmental activities. It mobilizes savings for funding various industries, sectors and trade etc. It promotes foreign trade and industries within the country. It also analyses the annual budgets of the state and the central government. It undertakes periodic publication of reports regarding the functioning of various banks and has thus helped in establishing the financial infrastructure of the country.

See Also: Reserve Bank of India

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