Functions of Reserve Bank of India

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Reserve Bank of India is the Central Bank of the country. The Reserve Bank of India was established in 1935 with a capital of Rs. 5 crores. This capital of Rs. 5 crores was divided into 5 lakh equity shares of 100 each. In the beginning, the ownership of almost all the share capital was with the non-government shareholders. In order to prevent the centralisation of equity shares in the hand of a few people The Reserve Bank of India was nationalised on January 1, 1949.
The general administration and direction of RBI is managed by a Central Board of Directors consisting of 20 members which includes one Governor, four Deputy Governors, one Government Official appointed by the Union Government of India to give representation to important strata in economic life of the country besides four directors are nominated by the Union Government to represent local boards. Apart from the central board, there are four local boards also and their head offices are situated in Mumbai, Chennai, Kolkata and New Delhi. Five members of local boards are appointed by the Union Government for a period of four years. The local boards work according to the instructions and the orders which is given by Board of Directors, and from time to time they also tender useful advice on the important matter. The office of RBI is in Mumbai.

Functions of Reserve Bank of India

 Issue of Notes

One of the main functions of Reserve Bank of India it that has the monopoly of note issue in the country and it has the sole right to issue currency notes of various denominations except one rupees notes. The Reserve Bank act as the only source of legal tender money because the one rupee note issued by the Ministry of Finance are also circulated through it. The Reserve Bank has adopted the Minimum Reserve System for note issue. One of the main functions of Reserve Bank of India since 1957, it maintains the gold and foreign reserve of Rs. 200 crore, of which at least Rs. 115 crore should be in gold.

Don’t Miss: Methods Used By Rbi To Control Supply Of Money

Banker to the Government

The second important functions of Reserve Bank of India is to act as the banker, agent, and adviser to the Government. It performs all the banking functions of the State and the 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 for the Government.

Bankers’ Bank

The Reserve Bank performs the same function for the other banks ordinarily performing for their customers. It is not the only banker to the commercial bank, but it is the lender of the last resort.

Also, Read: Fiscal Policy

Controller of Credit

One of the most important functions of Reserve Bank of India is that it undertakes the responsibility of controlling credit created by the commercial banks. To achieve this objective it makes extensive use of quantitative and qualitative techniques to control and regulate the credit effectively in the country.

Custodian of Foreign Reserves

For the purpose of keeping the foreign exchange rates stable, the Reserve Bank buy and sells the foreign currencies and also protect the country’s foreign exchange funds.

Read Also: International Monetary Fund (IMF)

Other Functions

The 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 and Trade Bill, giving loans to the Government, buying and selling of the valuable commodities etc. It also acts as a representative of Government in IMF and represents the membership of India.

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