Functions of Reserve bank of India

Functions of RBI may be summarised as given below:

1. Banker to Government

The Reserve Bank of India accepts and makes payment on behalf of Central Government. It carries out its exchange, remittance, management of public debt and other banking function of the Central Government. The Central Government entrusts its money, remittance, exchange and banking transactions in India with the Reserve Bank of India. 

2. Right to Issue Bank note

The Reserve Bank of India has the sole right to issue bank notes in India. The bank notes are legal tender guaranteed by the Central Government. The issue of bank note is conducted by a separate department called issue department. The Central Government on the recommendation of Central Board specifies denomination of bank notes including discontinuance of bank notes.

3. Formulates Banking policy 

The Reserve is empowered to formulate banking policy in the interest of the public or depositors banking policy in relation to advances and provide direction on the purpose of the advances, margins to be maintained in a secured advances, the maximum amount of advance may be made, the rate of interest, terms and conditions for advances or guarantees may be given.

4. Licensing Authority

The Reserve Bank of India is empowered to grant license to commence banking business in India, including the power to cancel a license granted to a banking company. A petition was filed under Article 226 of the Constitution, challenging the constitutional validity of section 22 of the Banking Companies Act, 1949. Section 22 empowers, Reserve Bank of India to grant license to Banks and banks which were already in existence on the commencement of the Act have to apply for license before the expiry of six months from commence.

 The petitioner contended that the section 22 of the Banking Regulating Act, 1949 is in restraint of trade and business hence unconstitutional. The writ was dismissed, and the High Court declared section 22 of the Banking Regulating Act, 1949 as constitutionally valid and cherished the role of Reserve Bank of India in the economic development of the country. The Madras High Court meticulously said, “The Reserve Bank of India was established with a view to fostering the banking business and not for impeding the growth of such business. The powers vested in it under Section 22 are not one invested with a mere officer of the Bank. 

The Reserve Bank is a non-political body concerned with the finances of the country. When a power is given to such a body under a statute which prescribes the regulations of a Banking Company, it can be assumed that such power would be exercised so that genuine: banking concerns could be allowed to function as a bank, while institutions masquerading as banks or those run on unsound lines or which would affect the interests of the public could be weeded out.”

5. Banker’s Bank

The banks listed in second schedule and non-schedule banks shall maintain a cash reserve ratio with the Reserve bank of India with a view to securing the monetary stability in the country. It provides loans and advances in foreign currency to scheduled Banks and to other financial institution. It purchases, sells or discount any bill of exchange or promissory note or makes a loan or advances to schedule bank.

6. Depositor Awareness and Education:
The Reserve Bank of India has constituted a fund called “Depositor Education and Awareness Fund.” The fund is utilised for the promotion of depositors‟ interest and other purposes in the interest of the depositor.

Regulation and Management of Foreign Exchange

The functions of the Reserve Bank today can be categorised as follows:

· Monetary and Credit policy

· Foreign exchange management 

· Currency management 

· Banker to banks & Lender of the last resort

· Banker to the Central and State Governments 

· Central clearing house of payment and settlement systems 

· Performing developmental and promotional functions.

Conclusion:  To sum up, I would like to say that the functions of the Reserve Bank today includes Monetary and Credit Policy, Foreign exchange management, Currency management, Bankers to banks and Lender of the last resort, Banker to the Central and State Governments, Central clearing house of payment and settlement systems and Performing developmental and promotional functions.


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2. Bhatt O.P. (2007) “Banking In India”; Yojana; (August,2007) (Pg. No. 83-87) 

3. Barman R. B. and Samanta G. P “Banking Services Price Index: An Exploratory Analysis for India”

4. Das, Abhima, Ghosh, Saibal (2006) “Financial Deregulation and Efficiency: An Empirical 

Analysis of Indian Banks during the Post Reform Period” Review of Financial Economics; ( Sep,2006, Vol. 15 Issue 3), (Pg.193-221) 

5. Hyde Dr. Anukool Manish (2007) “A study of Learned Optimism in Nationalised Banks and Private Banks” BVIMR Management Edge (Vol 3 No. 2, Jan-June 2007) (Pg:26-32)