Functions of the Reserve Bank of India

Standing above every commercial, cooperative and regional rural bank in India is the Reserve Bank of India (RBI), the country's central bank. Unlike a commercial bank, the RBI does not exist to earn a profit from ordinary banking business with the general public; its purpose is to regulate the monetary and banking system of the entire country.

• Issue of currency. The RBI holds sole legal authority to issue currency notes in India (other than one-rupee notes and coins, issued by the Government of India), so the country's currency supply is managed by a single, accountable authority.
• Banker to the government. The RBI manages the banking transactions of the central and state governments — accepting receipts, making payments on their behalf, and managing public debt.
• Banker's bank. Every commercial bank keeps part of its own reserves with the RBI, and the RBI acts as lender of last resort to commercial banks facing a genuine financial emergency.
• Controller of credit. Through tools such as the cash reserve ratio, the bank rate and open-market operations, the RBI expands or contracts the credit commercial banks can create, directly applying the credit-creation principle from the previous section to manage inflation and overall economic activity.
• Custodian of foreign exchange reserves. The RBI holds and manages the country's foreign exchange reserves and regulates the foreign exchange market to keep the rupee's exchange rate reasonably stable.
• Regulator and supervisor of the banking system. The RBI licenses new banks, inspects existing ones, sets prudential rules such as minimum capital and reserve requirements, and can act against a bank that fails to meet its standards. …