Functions of RBI

Now I am going to talk about some functions and roles of our central bank RBI.

• Note Issuing Authority

The Issue of currency is basic function of RBI.Although One rupees coins and notes are issued by govt of India ,they are put into circulation only through RBI.The responsibility of the Bank is not only to put currency into or withdraw it from circulation but also to exchange of note and coin of one domination into those of other domination as demanded by public.

The Bank can issue notes against security of gold coins and gold bullion, foreign securities,Government of India securities ,and such bills of exchange and promissory notes as are eligible for purchase by the Bank .The RBI notes have a cent percent backing or cover in these approved assets .

• Government Banker

The RBI is Banker to the central and state governments.It provides to the government all banking services such as acceptance of deposits ,withdrawal of funds by cheques ,making payment as well as receipt and collection of payment on behalf of government ,transfer of funds, and management of public debt.

The Bank receives government deposit free of interest , and It is not entitled to any remuneration for the conduct of service.The deficit or surplus in Central govt. account with RBI is managed by creation and cancellation of ad hoc treasury bills .

• Bankers’ Bank 

The Bank control the volumes of reserves of commercial bank and thereby determine the deposit/credit creating ability of the Banks .In time of need banks borrow funds from RBI.

• Supervising Authority

The RBI has a huge power to supervise and control the commercial and co operative banks with a aim to develop an adequate and sound banking system in the country.It has the following powers .

1. To issue license for the establishment of new banks and their branches.
2. To prescribe minimum requirements regarding paid up capital and reserve ,transfer to reserve fund ,maintenance of cash reserve and other liquid assets.
3. to inspect the working of Bank in India as well as abroad.
4. to conduct ad hoc investigations ,from time to time ,into complaints , irregularities , and fraud in respect of the Bank.
5. To control appointment , re -appointment ,termination  of the Chairman and C.E.O of private sectors bank.
6. To approve or force amalgamations.

•      Exchange Control Authority

One of the essential function of RBI is to maintain the stability of the external values of rupees .As far as external sector is concerned ,the task of RBI has following dimension :

1. To choose the Exchange rate system and fix the or manage the exchange rate between rupees and other currencies ,
2. To manage exchange reserve ,
3. To negotiate with monetary authorities of Sterling Areas ,Asian Clearing Union ,IMF , World Bank ,Asian Development Bank etc.

• Promoter of Financial System

Apart from above functions already mentioned ,The RBI has rendering ‘ development ‘ or ‘Promotional’ services which have strengthened the Country’s Banking and Financial system.For example ,As a part of promotional role , Bank has been pre- emptying credit for certain sector like Money Market , Agriculture Sector ,Industrial Finance etc at concessional rates.

• Another great role of RBI is to formulate and conduct the monetary policy .

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