Role and Functions of RBI Economics Study Material & Notes

RBI is currently focused on implementing Basel-III norms to regulate the hidden Non Performing Assets in Banking system. Thus it checks the credit creation capacity of commercial banks by using various credit control tools. If the credit creation by commercial banks is unregulated then it may lead the economy into inflationary cycles. Banker to GovernmentThe second important function of the RBI is to act as Government banker, agent and adviser. Promotes and performs promotional functions to support national banking and financial objectives. The primary objectives of RBI are to supervise and undertake initiatives for the financial sector consisting of commercial banks, financial institutions and non-banking financial companies .

The Board of Financial Supervision of the RBI meets at least once in a month to closely monitor all these current developments in the country. India being the fastest growing economy in the world, India is expected to play a major role in the world affairs by many countries. RBI being the banking institutional head of India has to be a part of global institutions. It has to transform the quality and size of banks in India to the level of banks in developed countries. It is not only vested with the powers to formulate the monetary policy but also to monitor the functioning of all banks.

What does RBI Constitute?

Section 21 gives power to reserve bank to control advances by banking companies. Section 45B talks about power of bank to collect credit information. It collects and publishes data on different sector of the economy.

This act permits the RBI to facilitate external trade and payments to boost the health and development of India’s foreign exchange market. The RBI formulates, implements and monitors the monetary policy of the country in order to maintain price stability, controlling inflationary trends and economic growth. It provides advices to the Government concerning agricultural finance, resource mobilization for implementing plans and legislation affecting banking and credit and international finance. Reserve Bank of India is the central bank of India which plays important role for the banking industry, development and growth of economy.

Functions of Reserve Bank of India

Currency notes are printed at Nasik, Dewas, Salboni, Mysore and Hoshangabad. The financial system includes many things like, financial institutions, financial markets and financial instruments. For rapid economic development of the nation’s economy, sound and efficient financial system is necessary for which RBI encourages the banking and non – banking institutions.

As of October 2021, the Governor of the Reserve Bank of India is Mr Shaktikanta Das. He is the 25th RBI Governor and all the RBI functions are supervised by him. ClearIAS is one of the most trusted online learning platforms in India for UPSC preparation. NBFCs, Primary Dealers and CICs also come under the regulation and supervision of RBI. That means RBI comes to rescue the banks that are solvent but have not gone bankrupt. RBI provides this facility to protect the interest of depositors and to prevent the possible failure of the bank.

RBI supervises and regulates the Foreign Exchange Market through the provision of the FEMA Act 1999. Whenever a bank needs funds, and nobody extends credits to them, RBI steps in and acts as a lender of last resort. These include both, outright purchase and sale of government securities, for both, injection and absorption of liquidity in the economy. The Reserve Bank”s affairs are governed by a central board of directors. The board is appointed by the Government of India for a period of four years, under the Reserve Bank of India Act. This avoids unnecessary transfer of funds between the various banks.

Leadership and Supervisory Functions B. Traditional Functions and C. To play its role effectively, autonomy in its functioning is sine qua non for RBI. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. Section 45r gives power to high court to call for returns and other information. May require by order to make changes in management within specified time.

Important Functions of RBI (Reserve Bank of India)

Most central banks are centralized though there could be central banks that are not government agencies. The RBI has a separate issue department which is entrusted with the issue of currency notes. The one-rupee notes and coins and small coins are issued by Central Government, and their distribution is undertaken by RBI as the agent of the government. The Central Bank is an apex institution of the monetary system which regulates the functioning of the commercial banks of a country.

• It also lays down distinct rules and regulations for the functioning of the banks.
• The part of RBI in the economy of India has altered as per the situation in the country.
• The Repo Rate and Reverse Repo Rate are significant tools through which the Reserve Bank of India can govern the accessibility and the supply of cash in the economy.

In April 2019 the Reserve Bank of India took the monetary policy verdict to lower its borrowing rate to 6%. This was the 2nd rate cut for the year 2019 and is anticipated to have a constructive impact on the borrowing rate through the credit market more significantly. Earlier to April, credit rates in India were persistently high, in spite of the central bank’s standing, which has been limiting borrowing across the economy.

Electronic Payments

RBI helps the Government – both Central and state – to float new loans and manage public debt. Subsequently, the reverse repo rate below the LAF remains at 4.90 percent, and the Bank Rate and marginal standing facility rate at 5.40 percent. The RBI has simplified the rules for credit to exporters, through which they can now get long term advance from banks. These methods influence the volume of money in selected or particular sectors of the economy.

The Reserve Bank’s affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act. Loan to Value is the ratio of loan amount to the actual value of asset purchased.

Banks open their current account with RBI to maintain SLR and CRR. RBI maintains Central and State Government funds like Consolidated Funds, Contingency Funds, and Public Account. These powers of RBI come main function of rbi from RBI ACt 1934 and Banking Regulation Act 1949. The Reserve Bank of India , is the Central Bank of the country which is responsible for the regulation and function of the Indian Banking System.

Micro Small and Medium Enterprises are included in the priority sector. All scheduled banks are required to open separate branches to specialise the financing of these industries. The loans of all scheduled banks should consist of a percentage of loans to priority sector. It works in close association with NABARD to develop agriculture in India. In times of emergency any bank in India can approach RBI for financial assistance.

Real Time Gross Settlement – A funds transfer function in which transfer of money takes place from one bank to another on a real-time basis without delaying or netting with any other transaction. Electronic Funds Transfer – This retail funds transfer system was to enable an account holder of a bank to electronically transfer funds to another account holder with any other intermediate or participating bank. Reverse Repo rate is the short-term borrowing rate at which RBI borrows money from other banks. The Reserve Bank of India uses this method to reduce inflation when there is excess money in the banking system. Provides the public adequately with currency notes and coins and in good quality.

Is responsible for undertaking various initiatives for the financial sector. This rate has been aligned to the MSF rate and hence, changes automatically with the MSF rate changes alongside policy repo rate changes. RBI has the responsibility of removing fluctuations from the exchange rate market and maintaining a competitive and stable exchange rate.

If RBI finds any discrepancy in the transaction, it can prevent the processing of the transaction. Quantitative measures refer to those measures that affect the variables, which in turn affect the overall money supply in the economy. The RBI has wide powers to supervise and regulate the commercial and co-operative banks in India.

Given below are the details of the key functions of the Reserve Bank of India. It has authority to regulate and administer the entire banking and financial system. Functions of RBI (The India’s Central Bank)Reserve Bank of India being an apex court of the center enjoys enormous power and functions under banking system in India. It has monopoly over the issue of bank-notes and monetary system of the country. These power and functions as to issue of bank notes and currency system are governed by the Reserve Bank of India Act, 1934.