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Role & Function of Reserve Bank of India: Banking Awareness

Searching for RBI's main functions and role? Today we have written on role and function of Reserve Bank of India. This a very important banking awareness topic for upcoming IBPS PO/clerk/RRB, SBI and RBI recruitment exams.





Main Functions and Role of Reserve Bank of India (RBI)


1) Note Issuance

RBI has the sole authority of issuing currency notes and putting them into circulation. RBI issues Rs. 2, 5, 10, 50, 100, 500 and 1000 currency notes. RBI does not issue Rs. 1 notes (1 rupee notes) which are issued by Finance Ministry, Government of India, but are put into circulation by RBI.


2) Banker of Government

RBI acts as the banker to the Central and State Government. Banking services of deposits, withdrawn of funds, making payments and receipts, collections and transfer of funds of public debts to the Government are provided by RBI.


3) Bankers’ Bank

RBI acts as a bankers’ bank. It is necessary to keep stipulated reserves in cash to them by the all state cooperative and commercial banks. It also act as a ‘lender of the last resort’ for all banks.



4) Supervision of Banks

The banking supervision function of RBI has been separated from its traditional central banking functions from November, 1993. In 1994, The Board of Financial Supervision (BFS) had been set to oversee the Indian Financial System. RBI’s supervisory power is not only over commercial and state-cooperative banks but also for the All India Financial Institution (AIFIs) and Non-Banking Financial Companies (NBFCs).



5) Exchange Control

RBI maintains the stability of the external value of the national currency (INR). Previously, it regulated the foreign exchange market in the country in terms of the ACT which was named as Foreign Exchange Regulation Act (FERA), 1947. This FERA Act was amended and enlarged in 1973. The FERA, 1973 has been replaced by the Foreign Exchange Management Act (FEMA) in 1999.



6) Monetary Control

Bank Rate, Repo Rate, Reverse Repo Rate (RRR), Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) are controlled by RBI. It issues credit and monetary policy annually. 



7) Regulatory Restrictions on Lending

RBI regulates the restrictions on lending by the banks in terms of the Banking Regulation ACT (BRA), 1949. The details of restrictions are given below-
  • No banks can hold shares in a company.
  • Banks can not grant loan against the security of their own shares or partly paid shares of a company.
  • Banks can not grant loan against CDs, FDs issued by other banks, money-market mutual funds.
  • If relatives of other banks apply for loan, then such loan can only be sanctioned by higher authorities or the Board of the bank as per RBI’s guidelines. These ‘Relatives’ have been defined by RBI in their guidelines.
  • RBI’s guidelines relating to the level of margin, credit, interest rate etc. should be adhered by the banks.


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