RBI Functions: 7 Main Functions of the RBI

Also, the addition of any new denomination or discontinuation of any existing denomination is being done by RBI. For example, during demonetization in November 2016, RBI discontinued old 500 and 1000 rupee notes and added new 2000 and 500 rupee notes. In order to maintain their SLR and CRR, banks open current accounts with the RBI. The RBI serves as a central banker for all of the individual banks and facilitates the settlement of money transfers between banks.

  • RBI extends its services to the other commercial banks of India and thus these banks provide banking services to the netizens.
  • The Tarapore committee was set up by the Reserve Bank of India under the chairmanship of former RBI deputy governor S.
  • The share of net demand and time liabilities that banks must maintain in safe and liquid assets, such as government securities, cash, and gold.
  • RBI, or the Reserve Bank of India, is the Central bank of India that acts as the regulatory and supervisory body of the financial system of the country.
  • As the name suggest, reverse repo rate is just the opposite of repo rate.

Due to this, it brings more confidence in the public toward the national financial system as it protects interest rates, and provides positive banking alternatives to the public at large. Finally, the RBI also acts as the issuer of the national currency, which means the currency is issued or destroyed depending on its fit for current circulation. This provides the Indian public with the supply of currency in the form of dependable notes and coins. High rates of currency are controlled and at the same time availability of currency notes and coins is effectively taken care of by RBI. Summing up, the RBI’s main objective is to conduct consolidated supervision of India’s financial sector, which consists of financial institutions, commercial banks, and non-banking finance firms.

What are the three functions that a bank performs?

The Department of Supervision assists and provides secretarial support to BFS. Bank rate is defined in Section 49 of the RBI Act of 1934 as the ‘standard rate at which RBI is prepared to buy or https://1investing.in/ rediscount bills of exchange or other commercial papers eligible for purchase’. When banks want to borrow long term funds from the RBI, it is the interest rate which the RBI charges to them.

  • It looks into the financial framework of the country and owes to strengthen economic policies of our nation.
  • So in order to prevent the centralisation of the shares in few hands, the RBI was nationalised on January 1, 1949.
  • You can first download the notes, and refer to the recommended books for kickstarting your preparation for the exam.
  • Domestic, fiscal and monetary policies have, therefore, an im­portant role in maintaining the external value of the currency.

The RBI was established on 1 April 1935 following the Reserve Bank of India Act, 1934, in Kolkata, India. There are three primary functions of RBI, i.e., to control inflation, encourage growth and achieve financial stability. Buying and selling foreign currencies and thus making sure a stable foreign exchange in India comes into RBI’s account. Reserve Bank of India holds the right to buy and sell foreign currencies in the international foreign exchange market.

Necessary Acts Administered by the RBI

Now you have all the necessary information regarding RBI as a banker to the government. The RBI, like that of the banker to the government, provides the government with short-term credit to cover any gaps in revenues over expenditures. It also offers state governments short-term loans in the form of means and methods of advances. However, certain state governments use overdrafts for limited periods.

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. LAF is a facility provided by the Reserve Bank of India to scheduled commercial banks to avail of liquidity in case of need or to park excess funds with the RBI on an overnight basis against the collateral of government securities. The share of net demand and time liabilities that banks must maintain in safe and liquid assets, such as government securities, cash, and gold.

The government has always appointed the RBI’s directors, and this has been the case since the bank became fully owned by the government of India as outlined by the Reserve Bank of India Act. RBI functions to protect the Interest of depositors through an effective regulatory framework. Keeping a keen eye over the conduct of banking operations and solvency of the banks along with maintaining the overall financial stability through various policy measures. The monetary policy of RBI helps control the credit/money supply in the economy.


RBI uses methods like On-site inspections, off-site surveillance, scrutiny & periodic meetings to supervise new bank licences, setting capital requirements and regulating interest rates in specific areas. On a given day, the foreign exchange rate reflects the demand for and supply of foreign exchange arising from trade and capital transactions. The RBI’s Financial Markets Department (FMD) participates in the foreign exchange market by undertaking sales/purchases of foreign currency to ease volatility in periods of excess demand for/supply of foreign currency. A commercial bank’s main functions are to receive deposits and lend money.

The Main Functions and Objectives of The Reserve Bank of India (RBI)

RBI work towards strengthening and supporting small local banks and encourage banks to open branches in rural areas to include large section of society in banking net. It was established by RBI,in February 2015, mandated to design, deploy and support IT-related services to all Banks and Financial Institutions in the country and also to the Reserve Bank of India. It manages and operates the Financial messaging platform (SFMS) that comprises Real-Time Gross Settlement and National Electronic Funds Transfer. The IFTAS has taken over the Indian FInancial NETwork (INFINET), Structured Financial Messaging System (SFMS) and the Indian Banking Community Cloud (IBCC) from the IDRBT, effective 1 April 2016.

GSTN Issued an Advisory Related to Changes in GSTR-5A

It has been set up by RBI to serve its Information Technology and cybersecurity needs and to improve the cyber resilience of the Indian banking industry. Apart from these traditional function, the RBI performs various activities of promotional and developmental nature. For instance, RBI has helped a lot in building the huge financial infrastructure that we see now.

The Reserve Bank of India (RBI) Annual Publications

RBI, also known as the Reserve Bank of India, is the statutory body that acts as the country’s central bank that handles the country’s economic stability and growth. It manages all the significant monetary policies of the government. One of the most important functions of RBI is to be the banker’s bank. As you might already know, the RBI plays a major role in devising guidelines for banks and other financial institutions. For this purpose, the RBI has set up a board called the Board of Financial Supervision (BFS). This is a Committee of the Central Board of Directors (CCBD) established in November 1994 for the sole purpose of controlling financial institutions in the country.

Raghuram Rajan has played his part and that is why you are enjoying lower interest rates on your loans as well as low inflation today. Did you know that the central bank of our country came into existence only in 1935? The Reserve Bank of India was established on 1st April 1935 when the British were still ruling the country. The Reserve Bank of India acts as a parent bank to all the primary banks operating in India.

We will also see the historic acts and the decisions that the bank has been a part of. Finally, we will summarise by listing the functions of the Reserve Bank Of India. Cash Reserve Ratio refers to the particular share of a bank’s total deposit, which is compulsory and it has to be maintained with the RBI in the form of liquid cash.

The BFS meets once a month to inspect reports and issues brought to its notice by the departments under it. The BFS also looks at improving the quality of audits in banks and other financial institutions. This newly constituted dept. will separate the activities of debt management and monetary operations in the future.

It is also responsible for operating the currency and credit system of India and having a modern monetary framework to meet the challenges of a developing economy. RBI must also maintain price stability along with the objective of economic growth. Establishing smooth and orderly transactions related to foreign currencies, stabilizing operations related to foreign exchange and maintaining gold reserves of the country are some of the pivotal roles played by the RBI.

When the repo rate increases, borrowing from RBI becomes more expensive. If RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate similarly, if it wants to make it cheaper for banks to borrow money it reduces the repo rate. If the repo rate is increased, banks can’t carry out their business at a profit whereas the very opposite happens when the repo rate is cut down. Generally, repo rates are cut down whenever the country needs to progress in banking and economy. The central bank manages to reach different goals of the Foreign Exchange Management Act, 1999.