What is Reserve Bank of India (RBI)?

What is Reserve Bank of India (RBI)?

The Reserve Bank of India (RBI) is the Central bank of India. RBI is the regulator of all banking operations in India. RBI issues & supply money in the entire country. RBI was established in 1935 under the Reserve Bank of India Act, 1934

RBI controls Commercial banks and Non-banking financial companies in India. RBI is the regulatory authority to control money supply and credit in India.  

RBI also conducts India’s monetary policy. RBI regulates loans offered by banks and non-bank financial institutions to government entities, businesses and consumers and controls the availability of funds in the financial system for credit.

The Reserve Bank is also responsible for monitoring currency flows to the Indian economy, managing exchange rates, and overseeing how banks and non-bank financial institutions operate.

RBI is totally owned by the government of India. The RBI operations are governed by a 21 member central board of Directors appointed by the government of India.

ALSO READ: What are the different types of Bank Accounts in India?

The main functions of Reserve Bank of India (RBI) are:

Issuance of Bank Notes: The Reserve Bank of India has the exclusive right to issue currency notes, except for one rupee notes which is issued by the Ministry of Finance. The currency notes issued by the Reserve Bank are declared as legal tender throughout the country.

Banker to the Central government: The Reserve Bank manages the banking needs of the government. RBI has to maintain and operate government deposit accounts, collect receipts of funds and make payments on behalf of the government, represents the Government of India as a member of the IMF and the World Bank.

Custodian of commercial banks: Commercial banks keep deposits with the Reserve Bank and the RBI has custody of the cash reserves of the commercial banks.

Custodian of India’s foreign currency: The Reserve Bank of India is the custodian of India’s international currency reserves and this helps it to face the crisis related to the adverse position of the balance of payments.

Lender in case of emergency:  Commercial banks approach the Reserve Bank in times of emergency to overcome financial difficulties and the Reserve Bank comes to their rescue although it could charge a higher interest rate.

Credit Controller: Since credit control is the most important part of the money supply and has important implications for economic stability, the importance of credit control becomes apparent. Credit is controlled by the Reserve Bank in accordance with the government’s economic priorities.


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