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7 Major Functions of The Reserve Bank of India

The Reserve Bank of India has 7 major functions: 1) It has the sole right to issue currency notes except for 1 rupee notes. 2) It manages the banking needs of the government and acts as the government's banker. 3) It holds the cash reserves of commercial banks. 4) It has custody of the country's foreign currency reserves. 5) It acts as a lender of last resort for commercial banks during financial emergencies. 6) It facilitates central clearing and accounts settlement between commercial banks. 7) It controls credit in the economy according to the government's economic priorities.

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2K views2 pages

7 Major Functions of The Reserve Bank of India

The Reserve Bank of India has 7 major functions: 1) It has the sole right to issue currency notes except for 1 rupee notes. 2) It manages the banking needs of the government and acts as the government's banker. 3) It holds the cash reserves of commercial banks. 4) It has custody of the country's foreign currency reserves. 5) It acts as a lender of last resort for commercial banks during financial emergencies. 6) It facilitates central clearing and accounts settlement between commercial banks. 7) It controls credit in the economy according to the government's economic priorities.

Uploaded by

Akshay Gode
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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7 Major Functions of the

Reserve Bank of India


Major functions of the RBI are as follows:

1. Issue of Bank Notes:


The Reserve Bank of India has the sole right to
issue currency notes except one rupee notes
which are issued by the Ministry of Finance.
Currency notes issued by the Reserve Bank are
declared unlimited legal tender throughout the
country.

2. Banker to Government:
As banker to the government the Reserve Bank
manages the banking needs of the government.
It has to-maintain and operate the governments
deposit accounts. It collects receipts of funds and
makes payments on behalf of the government. It
represents the Government of India as the
member of the IMF and the World Bank.

3. Custodian of Cash Reserves of


Commercial Banks:
The commercial banks hold deposits in the
Reserve Bank and the latter has the custody of
the cash reserves of the commercial banks.

4. Custodian of Countrys Foreign Currency


Reserves:
The Reserve Bank has the custody of the
countrys reserves of international currency, and
this enables the Reserve Bank to deal with crisis
connected with adverse balance of payments
position.

5. Lender of Last Resort:


The commercial banks approach the Reserve
Bank in times of emergency to tide over financial
difficulties, and the Reserve bank comes to their
rescue though it might charge a higher rate of
interest.

6. Central Clearance and Accounts


Settlement:
Since commercial banks have their surplus cash
reserves deposited in the Reserve Bank, it is
easier to deal with each other and settle the
claim of each on the other through book keeping
entries in the books of the Reserve Bank. The
clearing of accounts has now become an
essential function of the Reserve Bank.

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

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