RBI(Reserve bank of India) and it's functions
RBI was established in 1935 during the British rule , to function as the central bank of the country. The RBI act 1934 confers upon it the power to act as note issuing authority, banker’s bank and banker to the government. Though privately owned initially, in 1949 it was nationalized and since then fully owned by Government of India (GoI). Its affairs are governed by the Central Board of Directors appointed by the Government of India .The preamble of the Reserve Bank of India describes it main functions as: ..to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.
Functions of RBI
1.RBI as bankers bank
Scheduled banks, appearing in the second schedule of RBI Act1934, can avail facilities of refinance from from RBI subject to their fulfilling certain obligations as laid down in the said act.Relation between RBI and banks is very close and of varied nature ,as detaied below:
a.As supervisory and controlling authority over banks-like, licencing ,permission of opening branches,inspection of banks,control over top management of bank.b.As controller of credit- RBI controls controls the credit flow by fixing SLR,CRR and interest rate.
c.As banker to banks-as a lender of last result and grants accommodation to scheduled banks in the form of re-discounting or purchase of eligible bills,loans and advances against certain securities.Also ,liquidity adjustment facility was introduced by RBI in the year 2000 the fund of which are being used by the banks for their day-to-day mismatches in their liquidity.Under this scheme Reverse Repo auctions(for absorption of liquidity) and Repo auction (for injection of liquidity) are conducted on a daily basis.
d.RBI is empowered to collect credit information from banking companies and to furnish such information in a consolidated form to any banking company applying for the same.
2. 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.
3.Issuer of Currency
Reserve bank of India is the sole body who is authorized to issue currency in India.Coins are minted by Government of India.The RBI works as an agent of government for distributing and handling of coins. RBI is also responsible for preventing counterfeiting of currency. The RBI is authorized to issue notes up to value of Rupees ten thousand.
4.Monetary Authority
Monetary authority or monetary policy refers to the use of instruments under RBI control to regulate availability, cost and use of money and credit and providing the citizens the appropriate available monetary facilities. Central bank does this to maintain pricing stability, low & stable inflation as well as promoting economic growth of country.
4. Regulation and Management of Foreign Exchange
The Reserve Bank of India is empowered to regulate, prohibit, and restrict dealing in foreign exchange. It issues license to banks and other institution to act as the authorized agency in the foreign exchange market. The RBI’s Financial Markets Department (FMD) participates in the foreign exchange market by undertaking sales / purchases of foreign currency to ease volatility in periods of excess demand for/supply of foreign currency.
5.Depositor Awareness and Education
The Reserve Bank of India has constituted a fund called “Depositor Education and Awareness Fund.” The fund is utilized for the promotion of depositors’ interest and other purposes in the interest of the depositor.
6.Regulator and Supervisor of the Payment and Settlement Systems
Payment and settlement systems play an important role in improving overall economic efficiency. The Payment and Settlement Systems Act of 2007 (PSS Act) gives the Reserve Bank oversight authority, including regulation and supervision, for the payment and settlement systems in the country. In this role, the RBI focuses on the development and functioning of safe, secure and efficient payment and settlement mechanisms.
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