Q.Explain monetary functions of 'Reserve Bank of India'.

RBI's monetary functions: note issue, banker to government, banker's bank/lender of last resort, custodian of forex reserves, and control of credit via quantitative and qualitative tools. OR: Bank rate is the RBI's lending/rediscount rate to banks, a key credit-control tool.

Monetary functions of the Reserve Bank of India:

• Issue of currency notes: The RBI has the sole right to issue currency notes (except one-rupee notes/coins issued by the government), ensuring an elastic and uniform note supply.
• Banker to the government: It keeps the accounts of the central and state governments, receives and makes payments on their behalf, and manages public debt.
• Banker's bank and lender of last resort: It keeps the cash reserves of commercial banks, provides them funds in difficulty, and acts as the lender of last resort.
• Custodian of foreign-exchange reserves: It maintains and manages the country's foreign-exchange and gold reserves and helps stabilise the external value of the rupee.
• Controller of credit (the key monetary function): Through quantitative tools — bank rate, cash reserve ratio (CRR), statutory liquidity ratio (SLR), repo/reverse repo rates and open-market operations — and qualitative tools (margin requirements, credit rationing, moral suasion), the RBI regulates the volume and direction of credit to control inflation and support growth.

OR — Short note on Bank Rate:

The bank rate is the rate of interest at which the RBI lends long-term funds to commercial banks or rediscounts their first-class bills of exchange. It is an important quantitative tool of monetary policy: …