Question

Highlight the important functions of Reserve Bank of India.

Hint:

Think of the RBI as the "head of the family" for the Indian financial system. It manages the country's money, advises the government on financial matters, and supervises all other banks to ensure the system is healthy.

Answer 1

The Reserve Bank of India (RBI) is the central bank of India. Its important functions include:


Issuer of Currency: The RBI has the sole authority to issue currency notes in India, except for the one-rupee note which is issued by the Ministry of Finance. This ensures uniformity in the circulation of money.
Banker to the Government: It acts as the banker, agent, and advisor to the Central and State Governments. It manages government accounts, public debt, and provides loans and advances to the government.
Banker's Bank and Supervisor: The RBI acts as the bank for all commercial banks. It holds a part of their cash reserves, lends them funds when needed, and provides a centralized clearing and remittance facility. It also regulates and supervises the banking sector.
Controller of Credit and Money Supply: This is one of its most crucial functions. The RBI uses various monetary policy tools (like Bank Rate, Repo Rate, Cash Reserve Ratio) to control the supply of money and credit in the economy to achieve price stability and economic growth.
Custodian of Foreign Exchange Reserves: The RBI manages the country's foreign exchange reserves to maintain the stability of the external value of the rupee and to facilitate foreign trade and payments.