Economics · Ch 4 — Banking and Monetary Policy
Reserve Bank of India (RBI): Role and Functions
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Reserve Bank of India (RBI): Role and Functions
The Reserve Bank of India (RBI) is India's central bank, established on 1 April 1935 under the Reserve Bank of India Act, 1934, and nationalised in 1949. As the apex monetary institution, the RBI sits above every commercial bank and directs how much credit the banking system studied in the previous section is actually allowed to create.
Main functions of the RBI
| Function | What it means |
|---|---|
| Bank of Issue | The RBI has the sole right to issue currency notes (other than one-rupee notes/coins, issued by the Government of India) |
| Banker to the Government | Manages the banking business, public debt and remittances of the Central and State Governments |
| Banker's Bank and Lender of Last Resort | Holds the cash reserves of commercial banks and lends to them in times of crisis |
| Controller of Credit | Regulates the volume and direction of credit in the economy through monetary policy tools (Sections 5–6) |
| Custodian of Foreign Exchange Reserves | Manages the country's foreign-exchange reserves and administers exchange-control regulations |
| Regulator and Supervisor | Licenses banks, prescribes prudential norms, and supervises the banking system under the Banking Regulation Act, 1949 |
| Developmental/Promotional functions | Promotes financial inclusion, rural credit, and the development of the money and capital markets |
Definition 1Reserve Bank of India (RBI)
India's central bank, established in 1935 and nationalised in 1949, responsible for issuing currency and regulating the country's money s …