Role And Function Of RBI In the Indian Economy: The Reserve Bank of India (RBI), the nation's Central Bank, is in charge of governing and overseeing the operation of the Indian Banking System. The Monetary Authority of India, or RBI, was established on the Hilton Young Commission's advice. The Reserve Bank of India Act of 1934 established the RBI's legal position, and it went into operation on April 1st, 1935. Additionally, when the RBI was established, it took over the government's duties previously carried out by the Controller of Currency and the Imperial Bank of India. The RBI furthermore served as the Central Bank of Pakistan from June 1948 till India's Partition. The Reserve Bank of India's activities and responsibilities are significant for preserving India's economy. A few of its responsibilities include controlling banknote production, ensuring financial stability, and managing the nation's currency and credit system. Aspirants in search of the role and function of RBI PDF, role and function of RBI in the Indian Economy, Role and functions of Reserve Bank of India, and functions of RBI in banking can refer to this article for complete details.

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What are the Objectives Of RBI?

As the foundation of the nation's financial system, the RBI has a number of goals, which are outlined in its preamble. Following is a list of some of them:

• To regulate the issue of Bank notes.
• Keeping reserves with a view to securing monetary stability in India and generally operating the currency and credit system of the country to its advantage.
• To have a modern monetary policy framework to meet the challenge of an increasingly complex economy.
• To maintain price stability while keeping in mind the objective of growth.

 

What Are The Fundamental Objectives Of RBI?

The fundamental objectives of the Reserve Bank of India are given below.

• Bank of all the other Commercial banks.
• Only the authority who has a note-issuing power.
• Bank to the Government of India.

 

What is the Structure Of RBI?

The central board of directors may have up to 21 members, including the governor and four deputy governors who are chosen by the government of India under the RBI Act, 1934 for a term of four years.

Constitution:

• Official Directors

  • Full-time: Governor and not more than four Deputy Governors.

• Non Official Directors

  • Nominated by the Government: Ten Directors from various fields and two government Officials.

  • Others: four Directors - one each from four local boards.

 

Role And Function Of RBI PDF

The roles and functions of RBI are curated in the form of a PDF for the reference of the candidates willing to know more about the Reserve Bank of India and its functions. Downloading the Role And Function Of RBI PDF helps you to remember the concepts easily about the Central Bank of India. The main objectives, structure of the Reserve Bank of India, main roles and functions of RBI, etc., are included in this Role And Function Of RBI PDF given below.

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What are The Main Roles and Functions Of RBI?

The important roles and functions of the Reserve Bank of India are given below.

1. Monetary Authority/Management

One of the most important duties of the RBI is to design and implement monetary policy as well as to guarantee monetary stability in India. It uses the financial and credit systems to its advantage.

2. Supervision Of Financial System

Through a strong regulatory system, the RBI serves to protect the interests of depositors. maintaining thorough oversight of the bank's operations and its solvency, as well as ensuring overall financial stability through several policy decisions.

3. Regulation of Foreign Exchange Market, Government Securities Market, and Money Market

• The Indian foreign exchange market is governed by the RBI. The FEMA Act of 1999's provisions are how RBI oversees and manages the foreign exchange market.

• The RBI oversees the trading of securities by the federal and state governments. It has the jurisdiction to control this thanks to the RBI Act of 1934.

• According to the wording of the RBI Act of 1934, the RBI has the power to regulate short-term and highly liquid debt securities.

4. Foreign Exchange Reserve Management

The responsibility for managing India's foreign exchange reserves lies on the RBI. The management of foreign exchange reserves is governed by the RBI Act of 1934's legislative regulations. According to the RBI Act of 1934, the RBI is permitted to invest these foreign exchange reserves in the following instruments. They are, Deposit money with foreign banks, Deposit with one of the commercial banks abroad, and Debt instruments.

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5. Bankers to the Central and State Governments

RBI serves as the government's banker. The RBI is in charge of receiving and disbursing funds on behalf of various government agencies. Additionally, RBI is permitted to appoint additional banks to serve as its agents and conduct banking operations on the government's behalf. The Central and State Governments' Consolidated Funds, Contingency Funds, and Public Accounts are all maintained by the RBI. As a lender to the government, RBI also extends loans to the federal, state, and territorial governments.

6. Government's Advisor

When asked to advise the government on financial and banking-related issues, RBI does so.

7. Debt Manager Of Central And State Governments

The primary goals of the debt management strategy are to reduce borrowing costs and even out the debt's maturity structure. On behalf of the federal government and state governments, RBI manages the nation's debt and issues fresh loans.

8. Banker To Banks

To maintain their SLR and CRR, banks open current accounts with the RBI. The RBI serves as a central banker for all of the individual banks and facilitates the settlement of money transfers between banks. RBI makes short-term loans and advances to banks for specific uses or in need.

9. Issuer Of Currency

To provide an adequate number of genuine and clean notes, the government and the RBI are in charge of the design, production, and overall administration of the national currency. To facilitate the movement of rupee notes and coins around the country, the Reserve Bank of India has granted permission to some bank branches to establish currency chests. (A currency chest is a storage where currency notes and rupee coins are kept on behalf of the RBI).

10. Developmental Role

The RBI's involvement in economic growth involves setting up organizations to construct financial infrastructure, ensuring credit to the economy's productive sector, and increasing access to accessible financial systems.

Important Features Of The Role And Functions Of RBI

• The RBI has the authority to appoint extra directors to the board of banking business as well as to establish a variety of guidelines for bank directors.
• The appointment, reappointment, and termination of the chairman, managing director, and chief executive officer of commercial banks (apart from PSBs) all require the prior consent of the RBI.
• If the need arises, the RBI may, with the consent of the Central Government, replace the Commercial Banks Board of Directors.
• Since the Central Government and RBI jointly regulate Public Sector Banks (PSBs), the RBI's authority over PSBs is constrained because it is unable to appoint new directors and managers, override the authority of the banks' boards of directors, or compel mergers.
• Banks were required to have specific reserves in the form of CRR and SLR by RBI regulations.
• The interest rate on NRI deposits, export credits (loans), and a few other types of loans is governed by the RBI. The majority of deposit and loan categories have, however, had their interest rates deregulated, thus it is now up to the banks to set these rates.
• For the protection of small depositors' interests in the event of bank collapse or bankruptcy (100 percent subsidy), the RBI established the Deposit Insurance and Credit Guarantee Corporation (DICGC). All qualifying bank depositors are covered by insurance up to Rs. 5 lakhs per depositor per bank. It collects premiums from banks to offer insurance coverage. All commercial banks, including foreign bank branches and UCBs/StCBs/DCCBs, are covered by the DICGC. It's crucial to remember that it excludes interbank deposits, deposits made by foreign governments, and deposits made by central and state governments.
• The RBI has permitted banks to engage in a variety of non-traditional banking operations, including the operation of mutual funds, insurance, and venture capital.

 

FAQs - Role And Function Of RBI In Indian Economy

Q. What are the fundamental objectives of RBI?

The fundamental objectives of the Reserve Bank of India are the bank of all the other Commercial banks, only the authority that has a note-issuing power, and the bank to the Government of India.

 Q. What is the role of RBI in monetary management?

One of the most important duties of the RBI is to design and implement monetary policy as well as to guarantee monetary stability in India. It uses the financial and credit systems to its advantage.

Q. What is the role of RBI in foreign exchange reserve management?

The responsibility for managing India's foreign exchange reserves lies on the RBI. The management of foreign exchange reserves is governed by the RBI Act of 1934's legislative regulations. According to the RBI Act of 1934, the RBI is permitted to invest these foreign exchange reserves in the following instruments. They are, Deposit money with foreign banks, Deposit with one of the commercial banks abroad, and Debt instruments.

Q. What is the role of RBI in the supervision of the financial system?

Through a strong regulatory system, the RBI serves to protect the interests of depositors. maintaining thorough oversight of the bank's operations and its solvency, as well as ensuring overall financial stability through several policy decisions.

Q. What are the roles and functions of RBI in the Indian Economy?

The roles and functions of RBI in the Indian economy are to regulate the issue of Bank notes, keep reserves to secure monetary stability in India, and generally operate the currency and credit system of the country to its advantage, to have a modern monetary policy framework to meet the challenge of an increasingly complex economy, to maintain price stability while keeping in mind the objective of growth.