Unit 5: Functions Of RBIPresented by: Mukul & Ankit

MBA MP

Introduction Central bank: guides, monitors, regulates, controls

& promote the IFS. Functioning since April 1, 1935 under RBI Act 1934. It was a private shareholders’ institution till January

1949 in India. Became state owned institution in under RBI Act

1948(transfer to public ownership). Central Government + Governor of the bank =

issue instructions as and when required.

The Functions

RBI functions within the framework of a mixed economic system.

The preamble of the RBI Act, 1934 states that, “to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.”

Continued.. Monetary Authority:

The RBI is responsible for implementing, formulating and monitoring the monetary policy of India.

Regulator And Supervisor Of The Financial System: The Supreme Financial Body sets down broad parameters of banking operations within which the country's banking and financial system operates.

Manager of Exchange Control: The RBI is responsible for managing the Foreign Exchange Management Act, 1999.

Continued.. Issuer Of Currency:

It is the only supreme body which issues and exchanges or destroys currency and coins not fit for circulation.

Developmental Role The RBI since its inception performs a wide range of promotional functions to support national objectives and generate goodwill among the citizens of the country.

Continued.. Credit Control Function : As a central bank of

the nation the RBI has to look for growth with price stability. Thus it regulates the credit creation capacity of commercial banks by using various credit control tools.

Supervisory Function: It has powers to issue license for setting up new banks, to open new braches, to decide minimum reserves, to inspect functioning of commercial banks in India and abroad, and to guide and direct the commercial banks in India.

Developmental / Promotional Functions of RBI

Development of the Financial System : The RBI has encouraged establishment of main banking and non-banking institutions to cater to the credit requirements of diverse sectors of the economy.

Development of Agriculture : It has successfully rendered service in this direction by increasing the flow of credit to this sector. It has earlier the Agriculture Refinance and Development Corporation (ARDC) to look after the credit, National Bank for Agriculture and Rural Development (NABARD) and Regional Rural Banks (RRBs).

Related Functions Banker to the Government: The RBI

performs merchant banking function for the central and the state governments and also acts as their banker. The RBI often advises the Government of the current monetary condition in the state.

Banker to Banks: maintains banking accounts of all scheduled banks. The RBI looks after the functioning of the state banks and grants them license and even cancels the same on account of fraud practice.

Thank You

Use the white money!