7 Major Functions of the Reserve Bank of India (RBI)

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The Reserve Bank of India is the country’s central bank and regulatory body, as well as the issuer and supplier of the Indian rupee. It also oversees India’s main payment systems and works to enhance economic growth.

Learn more about the Major Functions of the Reserve Bank of India (RBI).

Issue of Bank Notes

Issue of Bank Notes: Except for one-rupee notes, which are produced by the Ministry of Finance, the Reserve Bank of India has sole authority to create currency notes. Currency bills printed by the Reserve Bank have been declared inviolate legal tender throughout the nation.

The Bank of India’s decision to incorporate a specific amount of monetary notes into circulation each year has several advantages: (i) it provides consistency in note issue; (ii) it enables effective state supervision; (iii) it is easier to manage and regulate credit in keeping with economic demands; and (iv) it maintains public confidence in paper money.

Banker to Government

Banker to Government: The Reserve Bank, as the government’s banker, manages the government’s banking requirements. It is responsible for keeping and maintaining the government’s deposit accounts. It collects receipts of money and makes payments on behalf of the government. It acts as India’s member of the IMF and World Bank in representing the country.

Custodian of Cash Reserves of Commercial Banks

Custodian of Cash Reserves of Commercial Banks: Commercial banks store their funds in the Reserve Bank, and the latter has custody of the bank’s cash reserves.

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Custodian of Country’s Foreign Currency Reserves

Custodian of Country’s Foreign Currency Reserves: The Bank of England is responsible for the country’s foreign currency reserves, allowing it to deal with crises caused by a negative balance of payments situation.

Lender of Last Resort

Lender of Last Resort: In times of crisis, commercial banks approach the Reserve Bank for a loan to tide them over, and the Reserve Bank comes to their rescue by offering a higher rate of interest.

Central Clearance and Accounts Settlement

Central Clearance and Accounts Settlement: Commercial banks have their excess funds held in the Reserve Bank, making it simpler to manage with and settle each other’s claims using Reserve Bank accounting entries. The clearing of accounts has now become a must-have feature of the Reserve Bank.

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Controller of Credit

Controller of Credit: The significance of credit control becomes apparent when one considers that credit is the most important component of money supply, and that money supply has significant long-term economic consequences. The Reserve Bank maintains control over credit in keeping with the country’s economic priorities.

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