Reserve Bank of India RBI : About, History, Objectives and Functions

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RBI helps them by lending money, although at higher RoI, to sail through the tide of financial difficulties. The most important function of RBI is the issuance of currency notes and coins, except the one rupee note and coin which are issued by the Ministry of Finance. All other notes bear the signature of the RBI Governor. However, the agency of distribution of all notes and coins issued by the Government of India is the Reserve Bank of India. The essential objective for the Reserve Bank of India is to direct the different financial functions for India in the money market. Therefore, they concentrate especially on issuing new notes.

Purchase and Sale of Securities- commercial banks also buys and sells the shares of all companies on behalf of their clients. Money as store of value solves the barter problem of lack of storing wealth . It has also been entrusted with the tasks of collection and compilation of statistical information relating to banking and other financial sectors of economy.

The various functions of rbi class 12 of a reserve bank as an advisor is to tender useful suggestions to the government regarding monetary policies and other economic matters. The rate at which central bank provides loan to commercial banks is called bank rate. This instrument is a key at the hands of RBI to control the money supply in long term lending. Bank rate is the rate of interest at which Central Bank lends to commercial banks. Clearly by raising the bank rate, Central Bank raises the cost of borrowing. This forces the commercial banks to raise, in turn, the rate of interest from the public.

  • Income Tax Consultancy- the commercial bank also advise on matters relating to Income Tax to their customers and even prepare their income tax returns.
  • Reserve Bank of India Act, 1934 is the legislative act by which the Reserve Bank of India was formed.
  • Thus, the use of money as a measure of value is the basis of specialised production.
  • RBI is the responsible agency for receiving and paying money on behalf of the various government departments.

But it is important to note that it does not cover deposits of foreign governments, deposits of Central and State governments, and interbank deposits. The Reserve Bank has adopted the Minimum Reserve System for issuing/printing the currency notes. Since 1957, it maintains gold and foreign exchange reserves of Rs. 200 Cr. Should be in gold and remaining in the foreign currencies.

Full-bodied money

All the commercial banks are regulated and supervised by Central Bank. Central Bank being Apex Bank, it acts as the banker to the other banks. It bears the same relationship with commercial banks as commercial banks maintain with the general public. Give the central bank power to influence money supply because currency with the public is part of the money supply.

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The monetary and other banking policies of the Government of India are governed by the Reserve Bank. The Reserve Bank of India was established on 1 April 1935 under the Reserve Bank of India Act 1934. The Reserve Bank of India has been in Mumbai since 1937. To publish sdl types of banking related information and statistics. Also experts’ articles to promote research related to bEinking. To make continuous efforts in the bEinking sphere and to provide special credit facilities to priority sectors.

Money Supply Class 12 Economics, Feature, Type, Notes

Here we have given Class 12 Banking Chapter 2 Reserve Bank Of India Solutions for All Subjects, You can practice these here. The loan book has grown to nearly four times as much, at Rs2.25 trillion as on September 30, 2019. Since then, the loan book has grown to nearly four times as much, at Rs 2.25 trillion as on September 30, 2019.

  • An increase in the cash-reserve ratio reduces the excess reserves of the bank and a decrease in the cash reserve ratio increases their excess reserves.
  • The RBI Act of 1934 provides the statutory basis of the functions of a bank.
  • It fulfils all the banking processes of the State and Central Government.
  • It has become possible because value of money is stable and it has general acceptability and durability.

Custodian of Foreign Reserve- The Reserve bank must balance out the outer estimation of the public cash. The Reserve Bank keeps gold and foreign currencies as reserves against note issues and also meets the unfavourable offset of instalments with different regions. Also, it oversees foreign currencies by the controls forced by the administration. Besides being the national bank for currency circulation, RBI has some other functions also.

So, here we will read in detail about these three types of functions. The central bank acts as a Banker, Agent and a Financial advisor to the central government, and all the state government . The deposits keep on increasing in each round by 90% of last deposits, similarly, cash reserves also go on increasing its time by 90% of last cash reserve.

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After the partition of India, he acted as the central bank, until June 1948, when the State Bank of Pakistan was operational. The bank, originally formed as a shareholder, was nationalized in 1949. The bank has commenced operations from the Government of India, including Comptroller of Currency, Imperial Bank of India, Government Accounts and Public Debt. The existing currency offices at Kolkata, Bombay, Madras, Rangoon, Karachi, Lahore and Kanpur became the branches of the issue department.

This GSEB Class 12 Economics Notes Chapter 4 Banking and Monetary Policy covers all the important topics and concepts as mentioned in the chapter. Vakilsearch is India’s largest provider of legal, secretarial, accounting, and compliance services. We have successfully worked with over 5 lakh customers, and have now registered over 10% of all the companies registered in India.

Regulation of banks may be related to their licensing, branch expansion, liquidity of asset winding up, etc. The control is exercised by periodic inspection of pants and the return filed by them. Underwriting Securities- commercial banks also do the task of underwriting securities. Sister creditworthiness of banks is high the people by the securities underwritten by banks easily without hesitation. Traveler’s cheques to their customers to avoid the risk of taking cash during their journey.

These powers of RBI come from RBI ACt 1934 and Banking Regulation Act 1949. The statutory status of the RBI is provided under the Reserve Bank of India Act of 1934, and become operational on April 1, 1935. Now, let us look at some of the important functions of RBI. As of October 2021, the Governor of the Reserve Bank of India is Mr Shaktikanta Das. He is the 25th RBI Governor and all the RBI functions are supervised by him.

RBI was established on 1 April 1935 by the RBI Act 1934. Key functions of RBI are, banker’s bank, the custodian of foreign reserve, controller of credit and to manage printing and supply of currency notes in the country. Bankers’ Bank- The Reserve Bank of India acts as the banker’s bank and it lends money to all the commercial banks of the country.

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Rest all the points mentioned are controlled by central bank. The app provides comprehensive study material in form of online courses to ace these examinations. Ensuring the quality of banknotes in circulation by continuous supply of clean notes and timely withdrawal of soiled notes.

Central Bank succeeds in convincing the banks as it acts as the lender of last resort however no punitive action is taken in case they do not follow the advice or request. Purchase of security by Central Bank increases the Reserves Andres Bankability to give credit. As an agent, Central Bank also has the responsibility of managing the public deposit.

Commercial banks buy and sell foreign exchange on behalf of their clients. According to recent Reserve Bank of India data, the uncertainty caused by the Covid-19 pandemic has led to a surge in the money supply. Know in detail about the Reserve Bank of India – RBI on the linked page.


On the contrary, a fall in CRR will lead to an increase in the money supply. Increase in the bank rate will make the loans more expensive for the commercial banks; thereby, pressurizing the banks to increase the rate of lending. The public capacity to take credit at increased rates will be lower, leading to a fall in the volume of credit demanded. Bank rate is the rate at which the central bank of a country lends money to commercial banks to meet the long-term means an increase in bank rate increase the cost of borrowing.

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Trading costs are nothing but costs of engaging in trade. Its two components are – search cost and disutility of waiting. Remember, search cost is the high cost of searching suitable persons to exchange goods and disutility of waiting refers to time period spent on searching the required person. This ultimately led to evolution of money as medium of exchange.

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In such an economy, a person gives his surplus goods and gets in return the goods he needs. For example, when a weaver gives cloth to the farmer in return for getting wheat from the farmer, this is called barter exchange. Similarly, the farmer can get other goods of his requirements like shoes, cow, plough, spade, etc. by giving his surplus wheat . Thus system of barter exchange fulfils to some extent the requirement of both the parties involved in exchange. However as the transactions increased, inconveniences and difficulties of barter exchange also increased involving rising trading costs.

It refers to the minimum percentage of total deposits to be kept by commercial banks with themselves. Open Market Operations- It refers to buying and selling of government securities to or from the general public or commercial bank. All Central Bank who is the Reserve of all commercial bank, it becomes easy and more convenient for it to act as their clearinghouse. All commercial banks have their account with Central Bank. Therefore the central bank can easily set with claims of various commercial banks against each other. As a financial advisor, the central bank advises the central government from time to time on economic-financial and monetary matters.

This lending is done on the basis of government securities, treasury bills, government bonds, etc. When commercial banks have exhausted all resources to supplement their funds at times of liquidity crisis, they approach Central Bank as a last resort. This saves banks from possible failure and banking system from a possible breakdown. On the other hand, Central Bank, by providing temporary financial accommodation, saves the financial structure of the country from collapse. The Reserve bank of India controls the credit created by commercial banks. The credit flow in the country is regulated by means of two methods; quantitative method and qualitative method.

Money is the measuring rod, i.e., it is the unit in which the values of other goods and services are measured in terms of money and expressed accordingly. Different goods produced in the country are measured in different units, e.g., cloth in metres, milk in litres, sugar in kilograms. Without a common unit of measure, exchange of goods and services becomes very difficult.

It brings demand and supply of foreign currency (U.S.) dollar close to each other for maintenance of exchange rate stability. The Reserve Bank of India was a private share holder’s company initially, which later was nationalized in 1949. Affairs of RBI are governed by the Central Board of Directors which is appointed by the Government of India. Since, after becoming the central bank of India, the Reserve Bank of India had played an important role in the economic development and monetary stability in the country.

As a result future payments are to be stated in term of specific goods or services. But there could be disagreement about quality of the goods, specific type of the goods and change in the value of the goods. Doubtlessly money helps in removing the difficulties of barter system as explained above. Monetary policy framework is being upgraded to meet financial challenges. The measures which impact the entire economy in a general or common way Eire called quantitative measures or general measures.