Reserve Bank of India (RBI) is the
central bank of the country. The Reserve Bank was established in 1935 by the
Banking Regulation Act, 1934 with a capital of Rs. 5 cr. Initially the
ownership of almost all the shares capital was in the hands of non-government
share holders. So in order to prevent the centralisation of the shares in few
hands, the RBI was nationalised on January 1, 1949.
Functions
of Reserve Bank
1. Issue of Notes —The Reserve Bank has the monopoly for printing the currency
notes in the country. It has the sole right to issue currency notes of various
denominations except one rupee note (which is issued by the Ministry of
Finance). The Reserve Bank has adopted the Minimum Reserve System for
issuing/printing the currency notes. Since 1957, it maintains gold and foreign
exchange reserves of Rs. 200 Cr. of which at least Rs. 115 cr. should be in
gold and remaining in the foreign currencies.
2. Banker to the Government–The second important function of the Reserve Bank is to act
as the Banker, Agent and Adviser to the Government of India and states. It
performs all the banking functions of the State and Central Government and it
also tenders useful advice to the government on matters related to economic and
monetary policy. It also manages the public debt of the government.
3. Banker’s Bank:- The Reserve Bank performs the same functions for the other commercial banks as the
other banks ordinarily perform for their customers. RBI lends money to all the
commercial banks of the country.
4. Controller of the Credit:- The RBI undertakes the responsibility of controlling credit
created by the commercial banks. RBI uses two methods to control the extra flow
of money in the economy. These methods are quantitative and qualitative
techniques to control and regulate the credit flow in the country.
When RBI observes that the economy has sufficient money supply and it may
cause inflationary situation in
the country then it squeezes the money supply through its tight monetary policy and vice
versa.
5. Custodian of Foreign Reserves:-For the purpose of keeping the foreign exchange rates
stable, the Reserve Bank buys and sells the foreign currencies and also
protects the country's foreign exchange funds. RBI sells the foreign currency
in the foreign exchange market when its supply decreases in the economy and
vice-versa. Currently India has Foreign Exchange Reserve of around US$ 360bn.
6. Other Functions:-The Reserve Bank performs a number of other developmental
works. These works include the function of clearing house arranging credit for
agriculture (which has been transferred to NABARD) collecting and publishing
the economic data, buying and selling of Government securities (gilt edge,
treasury bills etc)and trade bills, giving loans to the Government buying and
selling of valuable commodities etc. It also acts as the representative of
Government in International Monetary Fund (I.M.F.)
and represents the membership of India.
New department constituted in RBI:- On July 6, 2005 a new department, named financial market department
in reserve bank of India was constituted for surveillance on financial markets.
This newly constituted dept. will
separate the activities of debt management and monetary operations in future.
This department will also perform the duties of developing and monitoring the
instruments of the money market and also monitoring the government securities
and foreign money markets.
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