THE FUNCTIONS

OF

RESERVE BANK OF

INDIA

Prepared By

Renny

M P

Functions of Reserve Bank of India

Traditiona

lFunctions

Promotion

al & Devolopme

ntal Functions

OtherFunctions

Prohibitory

Functions

A. Traditional FunctionsIssue

of Curren

cy

Banker to

Government

Banker’s Bank

Exchange

Management & ControlContro

l of Credit

Collection &

Publication of Data & Reports

Training

Facilities

1. Issue of Currency.Acts as the currency authority. Monopoly of issuing all denominations except

one rupee note & coins They are printed and issued by “Issue

Department”. Rs.1,2,5 and small coins (issued by Ministry of

Finance) are also distributed by this dept. Currency is distributed to banks & public

through

15 offices and 2 branches in touch with SBI 7 Associates some public sector banks State Govt. treasuries & sub-treasuries.

2. Banker to Government. Acts as banker to the Central & State Govt.s It renders following services:

Maintains and operates the cash balances of the Central & State govt.s in the current account deposit.

Receives and makes payments on behalf of the Central & State govt.s

Carries out exchange, remittance and other banking operations on behalf of them.

Buys and sells govt. securities in the market. Manages the public debt by issuing govt.

loans and paying interest and principal.

Sells treasury bills through tender on behalf of the govt.

Advices the govt.s on all banking and financial matters (financing 5 Year plans and resource mobilisation, balance of payment, etc.

Acts as the agent of the Central & State govt.s in their dealings with IMF, World Bank, IFC, Exim Bank, etc.

3. Banker’s Bank. Acts as banker to scheduled commercial

banks in India.1) Keeps a part of the cash reserves of these

banks and provides them with remittance facilities.

2) It supervises, regulates and controls the working of banks in India(issuing licence for opening & branch expansion, inspection of books & accounts, etc.

3) Acts as clearing house for banks.4) Provides refinance facilities to commercial

banks for export credit.

4. Exchange Management & ControlExchange Management & Control

Manage Foreign Exchange Reserves

Control external value of rupee

Manage foreign Exchange Reserves Under Foreign Exchange Regulation Act,

1973, it controls receipts & payments of foreign currencies.

• Foreign currencies coming to India are sold and exchanged…

• Foreign currencies are provided to importers & persons travelling abroad.

Control External Value of Rupee

Changes the exchange rate of the rupee in relation to other currencies( such as dollar, mark, yen. Sterling, etc.)

Introduced full convertibility of rupee to entire current account transactions.

5. Control of Credit Controls money supply and credit to

ensure price stability & meet varying economic conditions of the country.

Estimates credit needs and supplies to different sectors.

variations in interest rates open market operations changes in CRR, SLR

6. Collection & Publication of Data & ReportsDepartment of Economic Analysis & policy

Division of Reports, Reviews & Publications

Collects data on economic matters and publishes them in various publications.

Important Publications:

i. Reserve Bank of India Bulletin ( monthly)

ii. Annual report on currency & financeiii. Report on Trend & Progress on

Banking in India.iv. Other occassional papers.v. Conducts surveys and publishes reports

on them.

7. Training Facilities Setting up training colleges & centres to

provide training to banking personnel.

1.Banker’s Training College at Mumbai :

Training to Senior officers

2.Reserve Bank Staff College at Madras : for bank officers on area of investment, fund mangt., customer

service, etc.

3.College of Agricultural Banking

at Pune : Training programmes in field of agricultural finance, rural banking, etc.

4.Zonal Training Centres in Mumbai, Culcutta, Chennai, New Delhi : for 3rd and 4th class staffs

Functions of Reserve Bank of India

Traditional

Functions

Promotional &

Devolopmental

Functions

OtherFunctions

Prohibitory

Functions

B. Promotional & Devolopmental Functions

Promotional & Devolopmental Functions

Creating Machinery needed for

financing dept.

Ensuring that the finance

flows in socially desired

directions

1.Agricultural Finance .

Provides advice and financial help for dept. of agriculture and allied rural activities.

Agricultural Credit Dept. NABARD ( since 1982 )

2. Industrial Finance.

Advice and help bank in providing financial help to industry

setting up SFC, IFCI, IDBI, ICICI,etc. Industrial Credit Dept.

3. Export Credit

RBI provides concessional credit, refinance facilities and guarantee to commercial bank for exporters.

Set up Exim Bank to finance export trade.

4.Credit to Priority sector & Weaker sections

Differential rate of interest scheme – provides concessional finance to them @ 4% interest rate .

5. Bill Market Scheme

Provide rediscounting facilities to commercial banks from the Bank and other financial institutions.

6.Devolopment & Regulation of Banking system

Devpt. & promotion of country. Establishing IDBI, IFCI, ICICI, SIDBI,etc. Judicious policy of regulation & control of banks.

Functions of Reserve Bank of India

Traditional

Functions

Promotional &

Devolopmental

Functions

OtherFunctions

Prohibitory

Functions

C. Other Functionsa. Issues demand

drafts, and makes, issues and

circulates bank post-bills.

b. Borrows money from a scheduled

bank in India/central banks in other countries.

c. Make agency agreement with central banks in

other countries, act as agent and invest

funds in their shares.

d. Purchases and sells gold and

bullion

Functions of Reserve Bank of India

Traditional

Functions

Promotional &

Devolopmental

Functions

OtherFunctions

Prohibitory

Functions

D. Prohibitory Functions Not for competing with other banks For keeping its assets in liquid form to

meet any eventuality.

Cannot give

interest for its

deposits

Cannot buy its own or other

banking company’s

sharesCannot

purchase immovable property except for its offices

Cannot give loans

against immovab

le property

Cannot participat

e in business/ trade/indu

stry

REFERENCE BOOKS :

M L JHNGAN, “Monetary Economics”, 5th Edition

“Economics for Managers” – Prescribed Text book of M.G.University

“Economic Times”

RBI Report on Currency and Finance,1991-92 & 1992-93.

THANK YOU