Role of RESERVE BANK OF INDIA (RBI)

by admin November 05, 2017

Role of RESERVE BANK OF INDIA (RBI)RESERVE BANK OF INDIA (RBI)

 

The RBI is India’s apex banking institution and the monetary authority. It sees upon the loans that the commercial banks offer to the general public (businesses, consumers, and government officials). It controls the availability of money for credit and ensures it is continuously circulated in the economy. The RBI has the following functions to work upon:

 

  1. ISSUE OF BANK NOTES: The RBI prints the actual monetary bills and issues it to commercial banks and the government in exchange for their gold deposits. it makes sure the amount of physical cash that is being circulated in the economy is equal to the gold reserve of the economy.

 

  1. BANKER TO THE GOVERNMENT: It keeps government’s accounts and provides them money as and when needed for the betterment of the country. The government does not have to deal with commercial banks as they directly deal with the RBI. It also maintains the forex accounts for them to easily deal in cash with outside countries. Also, it maintains the foreign currency reserves for the entire country.

 

  1. CUSTODIAN OF CASH RESERVES OF COMMERCIAL BANKS: RBI keeps the commercial banks’ cash reserves with them and gives them money to give away loans and interests as and when demanded by them. RBI can be called as the banker of the commercial banks as it performs the exact same functions the commercial banks perform for the general public.

 

  1. LENDER OF THE LAST RESORT: This typically means that the RBI lends money only at the last possible option when the commercial banks run out of money to give to their clients. The commercial banks ask for loans from the RBI and when the cash reserves of the particular bank are completely exhausted the RBI gives them money from their pockets.

 

  1. CONTROLLER OF CREDIT: The RBI decides how much money should exactly be floating in the market and whether the commercial banks should withdraw from passing loan requests or not. This is used the control the inflation and deflation situation in the economy. during the time of inflation, the RBI does not pass loans so that the money flow in the market is reduced and during deflation, it easily grants loans so that the money flow rises.
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