Functions of the Reserve Bank of India

On 1st April 1935, the Reserve Bank of India (RBI) was established according to the RBI Act, of 1934. This bank was established as a joint stock bank with a share capital of Rs 5 crore. In this post, you will find the top 6 important functions of the Reserve Bank of India.

On 1st January 1949, the RBI was nationalized by the Government of India and it started functioning as a Central Bank of India then.

Central Bank / RBI
Credit: Getty Images

Functions of the Reserve Bank of India

Functions of the Reserve Bank of India #1

Issuing of notes:

The Central Bank of a country has an exclusive right of issuing notes. Under the original Act, there was a provision for issuing currency notes according to the proportional reserve system. In India, the RBI can print or issue any volume of currency or notes by keeping a gold reserve worth Rs 115 crore and foreign exchange worth Rs 85 crore.

Functions of the Reserve Bank of India #2

Banker to the government:

The Central Bank is also a banker, agent and financial advisor to the government. As a banker, it manages government accounts across the country. It buys and sells securities on behalf of the government as its agent. It helps the government in framing policies to regulate the money market by acting as an advisor to the government.

Functions of the Reserve Bank of India #3

Lender of the resort:

The Central Bank also provides financial assistance to commercial banks by rediscounting eligible bills of exchange. When commercial banks do not get loan facilities from any other sources, they approach the Central Bank as a last resort. The Apex Bank advances loans to such banks against approved securities.

Functions of the Reserve Bank of India #4

Custodian of the cash reserve:

The RBI acts as the custodian of the foreign exchange reserves of India. One of the essential activities of the RBI is maintaining the external value of the Indian Rupee. The RBI has the authority to enter foreign exchange transactions both on its own account and on behalf of the government.

The market rate of exchange of the rupee is determined by the forces of demand for and supply of foreign currencies in India. The RBI has the discretion to intervene in the foreign exchange market through the purchase and sale of foreign currencies.

Functions of the Reserve Bank of India #5

Controlling credit:

The Central Bank increases or decreases the supply of money by regulating the creation of credit by commercial banks. Uncontrolled credit causes economic fluctuations. The Central Bank establishes stability not only in the internal price level but also in the foreign exchange rates to control credit effectively. This kind of stability is essential for economic growth and the development of the economy.

Functions of the Reserve Bank of India #6

Other functions:

The RBI maintains relations with international organizations such as International Monetary Fund and World Bank. It also performs a variety of developmental and promotional functions. It has also been entrusted with collecting and compiling statistical information related to banking and other financial sectors of the economy.

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