Reserve Bank of India: Role & Functions | UGC NET Commerce Preparation Course PDF Download

Role of Reserve Bank of India

The Reserve Bank of India (RBI) serves as the cornerstone of the nation's financial system. Entrusted by both the public and the government, it oversees and regulates the flow of money within the market, contributing to economic stability and growth.

Established in 1935, the RBI has since managed the circulation of the Indian rupee. It also regulates commercial banks through various policies and directives. Each bank is required to maintain a reserve with the RBI, which dictates the amount it can lend to the public. The RBI enforces numerous policies and rules to monitor the country’s economy effectively.

Objectives of the RBI

As a critical financial institution, the RBI has several key objectives outlined in its preamble:

Primary Objectives:

• Addressing issues related to banknotes.
• Ensuring monetary stability.
• Managing the credit system and currency to benefit the economy.
• Remaining politically independent to uphold financial stability and foster growth.

Fundamental Objectives:

• Serving as the central bank for commercial banks.
• Holding exclusive authority to issue currency.
• Acting as the banker to the Government of India.
• Promoting economic growth while maintaining price stability within a structured framework.

Functions of the RBI

Under the RBI Act of 1934, the RBI performs various functions:

• Monetary Authority: It formulates and oversees monetary policies to balance growth and price stability.
• Financial System Supervisor: It sets guidelines for banks to maintain public trust and offer cost-effective services.
• Foreign Exchange: It manages foreign exchange transactions to facilitate smooth international trade and maintain the foreign market.
• Issuer of Currency: The RBI issues and regulates currency, including the destruction of old notes and the introduction of new ones, such as during the demonetization process.
• Development: It funds national projects and invests in initiatives of national interest.

Supervisory Functions of the RBI

The RBI also has supervisory responsibilities:

• Granting licenses to commercial banks.
• Conducting inspections of banks.
• Implementing the Deposit Insurance scheme.
• Regulating non-banking financial institutions.

Conclusion

With 27 regional and 4 sub-offices, primarily in state capitals, the RBI plays a crucial role in managing state economies. It crafts and promotes policies designed to boost economic growth and stability while keeping inflation in check. The RBI’s credit policy aims to foster growth and maintain price stability, thereby enhancing GDP and positively impacting India’s economy. Additionally, it supports industrial and agricultural development, contributing to overall economic progress.