Functions of the Reserve Bank of India (RBI)

➡️ Join Whatsapp Group
➡️ Join Telegram Group

The Reserve Bank of India (RBI) executes several critical functions that contribute to the country’s economic stability and growth. These functions include overseeing monetary policy, issuing currency, managing foreign exchange, and serving as the banker to both the government and scheduled commercial banks. The foundational purposes for which the RBI was established as India’s central bank are detailed in the preamble to the RBI Act:

Monetary Policy and Currency Management

    • Regulate the issue of banknotes and maintain reserves to ensure monetary stability in India.
    • Operate the currency and credit system to the country’s advantage.
    • Implement a modern monetary policy framework to address the complexities of the economy, with the primary objective of maintaining price stability while promoting growth.

    Financial Supervision

      • Conduct consolidated supervision of the financial sector, including commercial banks, financial institutions, and non-banking finance companies.
      • The Board for Financial Supervision (BFS) oversees the Department of Banking Supervision (DBS), the Department of Non-Banking Supervision (DNBS), and the Financial Institutions Division (FID). The BFS is chaired by the RBI governor and includes deputy governors and directors from the Central Board.

      Regulator and Supervisor of the Financial System

        • Ensure financial stability and public confidence in the banking system.
        • Regulate banking operations, supervise new bank licenses, set capital requirements, and regulate interest rates.
        • Address customer complaints through the Banking Ombudsman Scheme.

        Regulator and Supervisor of Payment and Settlement Systems

          • Oversee the development and functioning of safe and efficient payment and settlement mechanisms, such as NEFT and RTGS.
          • Enable 24/7 fund transfers through NEFT since December 16, 2019.

          Banker and Debt Manager to the Government

            • Serve as the banker to the Government of India, maintaining accounts and facilitating financial transactions.
            • Assist the government in raising funds through bonds and government-approved securities.
            • Issue taxable bonds for investments, such as the Floating Rate Savings Bonds, 2020.

            Foreign Exchange Management

              • Manage foreign exchange under the Foreign Exchange Management Act, 1999, to facilitate external trade and maintain the forex market.
              • Participate in the forex market to manage volatility and ensure stability.

              Issuance of Currency

                • Sole authority to issue banknotes in India, while the Government of India mints coins.
                • Maintain the integrity of the currency by issuing and destroying banknotes as needed.
                • Prevent counterfeiting by regularly upgrading security features of currency.

                Bankers’ Bank

                  • Maintain accounts for scheduled banks and facilitate inter-bank transfers.
                  • Control credit through mechanisms such as the Cash Reserve Ratio (CRR), repo rate, and open market operations.
                  • Act as the lender of last resort by providing emergency advances to banks.

                  Detection of Fake Currency

                    • Raise awareness about counterfeit currency through initiatives like the “Paisa Bolta Hai” website.
                    • Withdraw outdated banknotes and ensure the circulation of secure currency.

                    Developmental Role

                    • Support national objectives by promoting priority sector lending, such as agriculture and small enterprises.
                    • Encourage banks to open branches in rural areas and support small local banks.

                    Custodian of Foreign Exchange

                    • Hold and manage the country’s international currency reserves, aiding in balance of payments stability.

                    Central Securities Depository (CSD) for Government Securities

                    • The Public Debt Office (PDO) acts as the CSD for government securities.

                    Mumbai Interbank Forward Offer Rate (MIFOR)

                    • Post-LIBOR cessation, the RBI plans to replace MIFOR, which has been used in the interest rate swap markets.

                      The RBI’s diverse functions ensure the stability and growth of the Indian financial and economic systems, making it a cornerstone institution in India’s economic landscape.