Developmental, Promotional and Supervisory Functions

Beyond its traditional central-banking role, the RBI performs several functions aimed specifically at developing India's financial system and protecting depositors.

Developmental (promotional) functions:

• Promoting institutional credit for agriculture and rural development — historically through its own Agricultural Credit Department, and by promoting the creation of specialised institutions such as NABARD (National Bank for Agriculture and Rural Development), which the RBI itself helped establish and initially funded.
• Promoting industrial finance — historically through helping establish institutions such as IDBI (Industrial Development Bank of India) and SIDBI (Small Industries Development Bank of India) for small-scale and medium industry.
• Promoting export finance — through the EXIM Bank (Export-Import Bank of India), which the RBI helped set up to finance India's foreign trade.
• Promoting financial inclusion — through directives such as priority-sector lending targets for banks, and initiatives like the licensing of Payments Banks and Small Finance Banks aimed at reaching the unbanked.

Supervisory functions:

• Licensing of banks — no bank can commence banking business in India without a licence from the RBI under the Banking Regulation Act, 1949.
• Bank inspection and supervision — the RBI regularly inspects the books and affairs of every bank to check its solvency, liquidity and compliance with regulations.
• Control over management — the RBI's approval is needed for the appointment, reappointment or removal of a bank's Chairman/Managing Director in specified cases. …