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Role and Function of Reserve Bank of India: Check responsibilities

The Central Office of the RBI was established in Calcutta (now Kolkata) but was moved to Bombay (now Mumbai) in 1937. The RBI also acted as Burma’s (now Myanmar) central bank until April 1947 (except during the years of Japanese occupation (1942–45)), even though Burma seceded from the Indian Union in 1937. After the Partition of India in August 1947, the bank served as the central bank for Pakistan until June 1948 when the State Bank of Pakistan commenced operations. Though set up as a shareholders’ bank, the RBI has been fully owned by the Government of India since its nationalisation in 1949.[17] RBI has a monopoly of note issue. The RBI was established by the RBI Act 1934, which went into force on April 1, 1935.

He keeps all the members of the family intact and ensures order in the house. Family members look up to the family head for suggestions whenever required and heed to their advice for managing their lives in a better way. Every bank has a headquarter which looks into the smooth functioning of its respective branches. The bank headquarters at specific regions of the country report to the RBI about their policies, fundamental aspects of the operation, strategies etc. B) Regulation of money, forex and government securities markets as also certain financial derivatives. The RBI is in charge of receiving and disbursing funds on behalf of the various government agencies.

If the government requires funds for carrying out a massive public project, then it certainly requires the payment of money for the project. Whenever the government in the rule requires loans for any of its projects, they are funded by the RBI. Just like how every citizen relies on a bank for his saving instruments, the government of the country treats the RBI as its banker and relies on it for managing the development of the nation. The payment processes sought by the government and other due settlements are effectively managed by the RBI authorities. In a family, we have a family head that looks after and supervises the smooth functioning of the family.

The RBI also holds the cash reserves that banks in the country deposit with the central bank. The Reserve Bank of India, abbreviated as RBI, is India’s central bank and regulatory body responsible for regulation of the Indian banking system. It is under the ownership of Ministry of Finance, Government of India. It is responsible for the control, issue and maintaining supply of the Indian rupee.

Reserve Bank of India – Functions, Composition, Role, RBI UPSC PDF

The RBI serves bankers to the government for both the federal and state governments. It conducts all government banking activities, including the receipt or payment of money. Located in Mumbai, the RBI serves the financial market in many ways.

  • First and foremost, the RBI formulates, implements, and monitors India’s monetary policy.
  • The RBI prints notes and issues coins and also destroys them, if they are not fit to use.
  • The objective is to maintain an adequate money supply in the country and also to ensure that the credit system in the country is working well.
  • The RBI receives application under this facility for a minimum amount of ₹ 10 million and in multiples of ₹ 10 million thereafter.
  • The old series of ₹1,000 and ₹500 notes were banned on 8 November 2016, and are no longer in use.
  • Say, for example, it feels the steel industry needs more loans to advance.

The RBI controls the total supply of money and bank credit to sub serve the country’s interest. The RBI controls credit to en­sure price and exchange rate stability. The RBI provides financial assistance to com­mercial banks and State cooperative banks through rediscounting of bills of exchange. As the RBI meets the need of funds of commercial banks, the RBI func­tions as the Tender of the last resort’. One- rupee notes and coins and small coins are issued by the Government of India. In actuality, the RBI also issues these coins on behalf of the Government of India.

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Fewer people will apply for loans and aggregate demand will be reduced. When the RBI reduces the repo rate, banks are not legally required to reduce their own base rate. Like any other cen­tral bank, the RBI acts as a sole currency authority of the country.

Financial supervision

Nagpur Reserve Bank was established in 1956, while the Ahmedabad branch was established in 1950. That means RBI comes to rescue the banks that are solvent (facing temporary liquid problems) but have not gone bankrupt. RBI provides this facility to protect the interest of depositors and to prevent the possible failure of the bank. Moreover, when RBI came into force it takes over the functions of Government so far being performed by the Controller of Currency and from the Imperial Bank of India. The Reserve Bank of India (RBI), is the Central Bank of the country which is responsible for the regulation and function of the Indian Banking System.

However hereby RBI plays a role as lender (acting as the lender of the last resort for all banks when they are in financial crisis situation) that lends money to the primary banks of India on certain interests. Also, it keeps an eye on the financial transactions of the banks so that amount of account holders remain secured in the banks. The Central Board of Directors retains the topmost position in the Reserve Bank’s organizational structure.

The RBI prints all the currency notes except the ______ currency note. The RBI is authorized to carry out periodical inspection of the banks and to call for returns and necessary information from them. Thus, supervisory functions of the RBI have helped a great deal in improving the standard of banking in India. The design, form and material of bank note are approved by Central Government on the recommendations of Central Board of the RBI. However, on recommendation of the Central Board, the Central Government may declare any series of bank notes of any denomination as not to be a legal tender.

The Reserve Bank has only a monopoly on printing currency notes in-country. The Reserve Bank’s Central Office had first been founded in Kolkata, although in 1937, it was completely relocated to Mumbai. The government of India had owned the Reserve Bank of India until 1949 when it was nationalised. A central board of directors oversees the Reserve Bank’s functioning. The Reserve Bank of India Act allows the government of India to select the board.

Reserve Bank of India (RBI) – Timeline

But since India is a vast country, redemption of these notes became a big issue. Consequently, some “Currency Circles” came up in various parts of country where the paper notes of Indian government were legal tenders. The BFS was set up to strengthen supervision and surveillance over the financial system and providing sharper focus to supervisory policy and skills.

Regulator and supervisor of the payment and settlement systems

When there is excess supply of money, central bank sells government securities thereby sucking out excess liquidity. Similarly, when liquidity is tight, RBI will buy government securities and thereby inject money supply into the economy. Apart from the CRR, banks are required to maintain liquid assets in the form of gold, cash and approved securities. Higher liquidity ratio forces commercial banks to maintain a larger proportion of their resources in liquid form and thus reduces their capacity to grant loans and advances, thus it is an anti-inflationary impact.

What is the role of the RBI in regulating non-banking financial institutions (NBFCs)?

The RBI regulates this ratio so as to control the amount a bank can lend to its customers. For example, an individual wants to buy a car using borrowed money and the car’s value is ₹1 million. The old series of ₹1,000 and ₹500 notes were banned on 8 November 2016, and are no longer in use.

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