Therefore, they concentrate especially on issuing new notes. Consequently, the RBI was set up with the point of being a banker's bank and similarly the bank for the government.
It aimed to expand the economic progress of the nation through different structures and economic policies of the government. In simple words, we can say that it's fundamental motive is to encourage the planned system of growth of the Indian economy.
Also read: How is India recovering from the economic slowdown? Now, let's move towards the functions of the Reserve Bank of India. The fundamental functions of the RBI are to manage the money supply in the nation. Similarly, it has been coordinated to deal with agriculture, industry, and many more. The RBI is likewise answerable for the support of the external value of the rupee. According to the RBI Act , it performs 3 kinds of functions as that of some other central bank.
So, here we will read in detail about these three types of functions. Bank of Issue - The Reserve Bank has a different Issue Department which is empowered with the issue of currency notes.
Under section 22 of the RBI Act , it has the exclusive right to issue currency notes of numerous groups except one rupee note as it is issued by the Ministry of Finance. The assets and liabilities of the Issue Department are kept separate from those other Banking Department.
Banker to Government - Now, coming towards the second significant function of the Reserve Bank of India which is to work as a Government banker, agent, and adviser.
It fulfils all the banking processes of the State and Central Government. It also tenders valuable suggestions to the government on topics related to economic and financial policy and even governs the public debt of the government. In simple words, we can say that RBI fulfils the same functions for the other commercial banks as the other banks fulfil their clients. Controller of Credit - We can say that the RBI is the controller of credit as it can impact the volume of credit made by banks in India.
It can do as such by changing the Bank rate or through open market tasks. Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Fiscal Programs. Monetary Policy Programs. International Stimulus Efforts. Monetary Policy Federal Reserve. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Another of the important functions of RBI is maintaining a reserve of foreign currencies that enables the RBI to deal with any crisis situation. Often regarded as the banker of banks, the RBI acts as a parent to all commercial banks in India. Thus, it becomes the lender of the last resort for all banks when they are in a crisis situation. RBI helps them by lending money, although at higher RoI, to sail through the tide of financial difficulties. RBI controls the credit created by the commercial banks in India, in accordance with the economic priorities of the government of India.
RBI uses quantitative and qualitative methods to control and regulate the flow of money in the market. Defence of India Rules invoked to authorise the Reserve Bank to collect information from banks in respect of advances.
This was to check advances against bullion for speculation. Interim arrangements for Bank Supervision were put in place by ordinances which were later replaced by the Banking Companies Act, These Ordinances empowered the Reserve Bank to inspect banks, as well as authorise the licensing of bank branches.
State Bank of Pakistan commenced operations wef July 1, Coming into force of the Banking Companies Act,
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