RESERVE BANK OF INDIA - Introduction
The Reserve Bank of India is the
Central Bank of our country. The Reserve Bank of India is the apex financial
institution of the country’s financial system entrusted with the task of
control, supervision, promotion, development and planning. Reserve Bank of
India came into existence on 1st April, 1935 as per the Reserve Bank of India
act 1935. But the bank was nationalised by the government after Independence.
It became the public sector bank from 1st January, 1949. Thus,
Reserve Bank of India was established as per the Act 1935 and empowerment took
place in Banking Regulation Act 1949.
The Reserve Bank of India
influences the management of commercial banks through its various policies, directions
and regulations. Its role in bank management is quite unique. In fact, the
Reserve Bank of India performs the four basic functions of management, viz.,
planning, organising, directing and controlling in laying a strong foundation for
the functioning of commercial banks. Reserve Bank of India has 4 local boards
basically in North, South, East and West – Delhi, Chennai, Calcutta, and
Mumbai.
Need and Objectives of RBI
The main
objectives of the RBI are contained in the preamble of the RBI Act, 1934. It
reads ‘Whereas it is expedient to constitute a Reserve Bank for India 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. RBI keeps importance because it was
constituted for the following needs:
(i) To
maintain monetary stability such that the business and economic life of the
country can deliver the welfare gains of a mixed economy.
(ii) To
maintain financial stability and ensure sound financial institutions so that
economic units can conduct their business with confidence,
(iii) To
maintain stable payment systems, so that financial transactions can be safely
and efficiently executed,
(iv) To
ensure that credit allocation by the financial system broadly reflects the
national economic priorities and social concerns.
(v) To
regulate the overall volume of money and credit in the economy to ensure a
reasonable degree of price stability,
(vi) To
promote the development of financial markets and systems to enable itself to
operate/regulate efficiently.
Important
functions of Reserve Bank of India are briefed below
i) Monopoly in
Note Issue: - Reserve Bank
of India enjoys monopoly of Notes
issue since its
establishment. The bank issues the currency notes of all denominations. Except coins which are issued by the ministry
of finance in the government of India. But
these coins are put into circulation only through the RBI. The Bank (RBI) issue
currencies to a minimum reserve system under which Rs 200/- crores
worth of Gold and foreign exchange reserve should be kept
out of these 200 crores, 115 crores
values should be in the
form of Gold only. To undertake this function
RBI established 2 department i.e.
a) Issue Department
b) Banking department
Issue department is involved in
issue of currencies and manages currencies circulation.
ii) Banker to
the Government: - Reserve Bank
of India acts as a banker to the central and state Government.
As a banker it provides all the services like a commercial bank to
these Governments. It accepts deposits of the Government and
allows them to withdrawal of cheques.
It makes payments and collect
receipts on behalf of the government. It also provides
temporary advances for maximum period of 3 months to these
governments. It is known as “Ways” and “Means advances”. It is also the financial advisor to the central and states. It also
helps them in formulation of financial policies.
iii)Banker’s
bank: - Reserve Bank of
India is the apex financial institution acts as banker
to other bank. RBI accepts deposits, maintains cash reserves and
lends loans to all the banks operating under its preview. It is a banker’s bank in the following grounds: It provides
short-term loans to the banks for 3 months against
(security) i.e. eligible securities.
It is known as lenders
of last resort in the times
of financial emergency. It also gives loans at
concessional rate of Interest for a
specific purpose. It
also offers refinance facilities to all the eligible banks.
iv) Regulatory
and Supervision Function: -The
most significant provision of the Banking regulation act is supervision
and regulation of banks. Further, it issued licensing for the banks and can establish new branches to maintain regional balance in the
country. It also arranges for training
colleges to the banks employees and officers.
v) Controller of
Credit: - Reserve Bank of
India is an important controller of credit in our credit. The credit created by
bank leads to inflation or depression and disturbs the smooth
functioning of the economy. Therefore, to regulate
credit Reserve Bank of India uses qualitative as well as Quantitative credit control measures.
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