Functions of RBI ( The India's
Central Bank ) List
For
simplification, the functions of the Reserve Bank are classified into the
traditional functions, the development functions and supervisory functions
Traditional Functions of RBI
Traditional
functions are those functions which every central bank of each nation performs
all over the world. Basically these functions are in line with the objectives
with which the bank is set up. It includes fundamental functions of the Central
Bank. They comprise the following tasks.
- Issue of
Currency Notes : The RBI
has the sole right or authority or monopoly of issuing currency notes
except one rupee note and coins of smaller denomination. These currency
notes are legal tender issued by the RBI. Currently it is in denominations
of Rs. 2, 5, 10, 20, 50, 100, 500, and 1,000. The RBI has powers not only
to issue and withdraw but even to exchange these currency notes for other
denominations. It issues these notes against the security of gold bullion,
foreign securities, rupee coins, exchange bills and promissory notes and
government of India bonds.
- Banker to
other Banks : The RBI
being an apex monitory institution has obligatory powers to guide, help
and direct other commercial banks in the country. The RBI can control the
volumes of banks reserves and allow other banks to create credit in that
proportion. Every commercial bank has to maintain a part of their reserves
with its parent's viz. the RBI. Similarly in need or in urgency these
banks approach the RBI for fund. Thus it is called as the lender of the
last resort.
- Banker to the
Government : The RBI being
the apex monitory body has to work as an agent of the central and state
governments. It performs various banking function such as to accept
deposits, taxes and make payments on behalf of the government. It works as
a representative of the government even at the international level. It
maintains government accounts, provides financial advice to the
government. It manages government public debts and maintains foreign
exchange reserves on behalf of the government. It provides overdraft
facility to the government when it faces financial crunch.
- Exchange Rate
Management : It is an
essential function of the RBI. In order to maintain stability in the
external value of rupee, it has to prepare domestic policies in that
direction. Also it needs to prepare and implement the foreign exchange
rate policy which will help in attaining the exchange rate stability. In
order to maintain the exchange rate stability it has to bring demand and
supply of the foreign currency (U.S Dollar) close to each other.
- Credit
Control Function :
Commercial bank in the country creates credit according to the demand in
the economy. But if this credit creation is unchecked or unregulated then
it leads the economy into inflationary cycles. On the other credit
creation is below the required limit then it harms the growth of the
economy. As a central bank of the nation the RBI has to look for growth
with price stability. Thus it regulates the credit creation capacity of
commercial banks by using various credit control tools.
- Supervisory
Function : The RBI has
been endowed with vast powers for supervising the banking system in the
country. It has powers to issue license for setting up new banks, to open
new braches, to decide minimum reserves, to inspect functioning of
commercial banks in India and abroad, and to guide and direct the
commercial banks in India. It can have periodical inspections an audit of
the commercial banks in India.
Along
with the routine traditional functions, central banks especially in the
developing country like India have to perform numerous functions. These
functions are country specific functions and can change according to the
requirements of that country. The RBI has been performing as a promoter of the
financial system since its inception. Some of the major development functions
of the RBI are maintained below.
- Development
of the Financial System :
The financial system comprises the financial institutions, financial
markets and financial instruments. The sound and efficient financial
system is a precondition of the rapid economic development of the nation.
The RBI has encouraged establishment of main banking and non-banking
institutions to cater to the credit requirements of diverse sectors of the
economy.
- Development
of Agriculture : In an
agrarian economy like ours, the RBI has to provide special attention for
the credit need of agriculture and allied activities. It has successfully
rendered service in this direction by increasing the flow of credit to
this sector. It has earlier the Agriculture Refinance and Development
Corporation (ARDC) to look after the credit, National Bank for Agriculture
and Rural Development (NABARD) and Regional Rural Banks (RRBs).
- Provision of
Industrial Finance : Rapid
industrial growth is the key to faster economic development. In this
regard, the adequate and timely availability of credit to small, medium
and large industry is very significant. In this regard the RBI has always
been instrumental in setting up special financial institutions such as
ICICI Ltd. IDBI, SIDBI and EXIM BANK etc.
- Provisions of
Training : The RBI has
always tried to provide essential training to the staff of the banking
industry. The RBI has set up the bankers' training colleges at several
places. National Institute of Bank Management i.e NIBM, Bankers Staff
College i.e BSC and College of Agriculture Banking i.e CAB are few to
mention.
- Collection of
Data : Being the apex
monetary authority of the country, the RBI collects process and
disseminates statistical data on several topics. It includes interest
rate, inflation, savings and investments etc. This data proves to be quite
useful for researchers and policy makers.
- Publication
of the Reports : The
Reserve Bank has its separate publication division. This division collects
and publishes data on several sectors of the economy. The reports and
bulletins are regularly published by the RBI. It includes RBI weekly
reports, RBI Annual Report, Report on Trend and Progress of Commercial
Banks India., etc. This information is made available to the public also
at cheaper rates.
- Promotion of Banking Habits : As an apex organization, the RBI always tries
to promote the banking habits in the country. It institutionalizes savings
and takes measures for an expansion of the banking network. It has set up
many institutions such as the Deposit Insurance Corporation-1962,
UTI-1964, IDBI-1964, NABARD-1982, NHB-1988, etc. These organizations
develop and promote banking habits among the people. During economic
reforms it has taken many initiatives for encouraging and promoting
banking in India.
- Promotion of Export through Refinance : The RBI always tries to encourage the facilities for providing finance for foreign trade especially exports from India. The Export-Import Bank of India (EXIM Bank India) and the Export Credit Guarantee Corporation of India (ECGC) are supported by refinancing their lending for export purpose.
Supervisory Functions of RBI
The
reserve bank also performs many supervisory functions. It has authority to
regulate and administer the entire banking and financial system. Some of its
supervisory functions are given below.
- Granting
license to banks : The RBI
grants license to banks for carrying its business. License is also given
for opening extension counters, new branches, even to close down existing
branches.
- Bank
Inspection : The RBI
grants license to banks working as per the directives and in a prudent
manner without undue risk. In addition to this it can ask for periodical
information from banks on various components of assets and liabilities.
- Control over
NBFIs : The Non-Bank
Financial Institutions are not influenced by the working of a monitory
policy. However RBI has a right to issue directives to the NBFIs from time
to time regarding their functioning. Through periodic inspection, it can
control the NBFIs.
- Implementation of the Deposit Insurance Scheme : The RBI has set up the Deposit Insurance Guarantee Corporation in order to protect the deposits of small depositors. All bank deposits below Rs. One lakh are insured with this corporation. The RBI work to implement the Deposit Insurance Scheme in case of a bank failure.
Reserve Bank of India's Credit
Policy
The
Reserve Bank of India has a credit policy which aims at pursuing higher growth
with price stability. Higher economic growth means to produce more quantity of
goods and services in different sectors of an economy; Price stability however
does not mean no change in the general price level but to control the
inflation. The credit policy aims at increasing finance for the agriculture and
industrial activities. When credit policy is implemented, the role of other
commercial banks is very important. Commercial banks flow of credit to
different sectors of the economy depends on the actual cost of credit and
arability of funds in the economy.
Latest CRR , SLR etc as per RBI latest Policy announcement.
Indicator |
Current
rate
|
Inflation
|
5.96%
|
Bank
rate
|
8.25%
|
CRR
|
4.00%
|
SLR
|
23%
|
Repo
rate
|
7.25%
|
Reverse
repo rate
|
6.25%
|
Visit Official Website of RBI
Official
website of RBI is :- www.rbi.org.in.