Functions of RBI

Reserve Bank of India regional office, Delhi

entrance with the Yakshini sculpture
depicting "Prosperity through
agriculture".[45]

The regional office of RBI (right) in front of

GPO (left) at Dalhousie Square, Kolkata.
Seal of the Reserve Bank of India.svg
The central bank of any country executes
many functions such as overseeing
monetary policy, issuing currency,
managing foreign exchange, working as a
bank for government and as a banker of
scheduled commercial banks. It also works
for overall economic growth of the country.
The preamble of the Reserve Bank of India
describes its main functions as:
..to regulate the issue of Bank Notes and
keeping of reserves with a view to securing
monetary stability in India and generally to
operate the currency and credit system of
the country to its advantage.

Financial Supervision
The primary objective of RBI is to
undertake consolidated supervision of the
financial sector comprising commercial
banks, financial institutions, and non-
banking finance companies.

The Board is constituted by co-opting four

Directors from the Central Board as
members for a term of two years and is
chaired by the governor. The deputy
governors of the reserve bank are ex-officio
members. One deputy governor, usually,
the deputy governor in charge of banking
regulation and supervision, is nominated as
the vice-chairman of the board. The Board
is required to meet normally once every
month. It considers inspection reports and
other supervisory issues placed before it by
the supervisory departments.

BFS through the Audit Sub-Committee also

aims at upgrading the quality of the
statutory audit and internal audit functions
in banks and financial institutions. The
audit sub-committee includes deputy
governor as the chairman and two
Directors of the Central Board as members.
The BFS oversees the functioning of
Department of Banking Supervision (DBS),
Department of Non-Banking Supervision
(DNBS) and Financial Institutions Division
(FID) and gives directions on the regulatory
and supervisory issues.

Regulator and supervisor of the financial

system
The institution is also the regulator and
supervisor of the financial system and
prescribes broad parameters of banking
operations within which the country's
banking and financial system functions. Its
objectives are to maintain public confidence
in the system, protect depositors' interest
and provide cost-effective banking services
to the public. The Banking Ombudsman
Scheme has been formulated by the Reserve
Bank of India (RBI) for effective addressing
of complaints by bank customers. The RBI
controls the monetary supply, monitors
economic indicators like the gross domestic
product and has to decide the design of the
rupee banknotes as well as coins.[46]

Regulator and Supervisor of the Payment

and Settlement Systems
Payment and settlement systems play an
important role in improving overall
economic efficiency. The Payment and
Settlement Systems Act of 2007 (PSS
Act)[47] gives the Reserve Bank oversight
authority, including regulation and
supervision, for the payment and
settlement systems in the country. In this
role, the RBI focuses on the development
and functioning of safe, secure and efficient
payment and settlement mechanisms. Two
payment systems National Electronic Fund
Transfer (NEFT) and Real Time Gross
Settlement (RTGS) allow individuals,
companies and firms to transfer funds from
one bank to another. These facilities can
only be used for transferring money within
the country.

NEFT operates on a deferred net settlement

(DNS) basis and settles transactions in
batches. The settlement takes place for all
transactions received until a particular cut-
off time. It operates in hourly batches —
there are 12 settlements from 8 am to 7 pm
on weekdays and SIX between 8 am and 1
pm on Saturdays.[48] Any transaction
initiated after the designated time would
have to wait till the next settlement time. In
RTGS, transactions are processed
continuously, all through the business
hours. RBI's settlement time is 9 am to 4:30
pm on weekdays and 9 am to 2:00 pm on
Saturdays.[49]

Banker and Debt Manager to

Government
Just like individuals need a bank to carry
out their financial transactions effectively &
efficiently, Governments also need a bank
to carry out their financial transactions. RBI
serves this purpose for the Government of
India (GoI). As a banker to the GoI, RBI
maintains its accounts, receive payments
into & make payments out of these
accounts. RBI also helps GoI to raise money
from public via issuing bonds and
government approved securities.

Managing foreign exchange

The central bank manages to reach
different goals of the Foreign Exchange
Management Act, 1999. Their objective is to
facilitate external trade and payment and
promote orderly development and
maintenance of foreign exchange market in
India.

With increasing integration of the Indian

economy with the global economy arising
from greater trade and capital flows, the
foreign exchange market has evolved as a
key segment of the Indian financial market
and RBI has an important role to play in
regulating & managing this segment. RBI
manages forex and gold reserves of the
nation.

On a given day, the foreign exchange rate

reflects the demand for and supply of
foreign exchange arising from trade and
capital transactions. The RBI's Financial
Markets Department (FMD) participates in
the foreign exchange market by
undertaking sales / purchases of foreign
currency to ease volatility in periods of
excess demand for/supply of foreign
currency.

Issue of currency
Reserve bank of India is the sole body who
is authorized to issue currency in India. The
bank also destroys the same when they are
not fit for circulation. All the money issued
by the central bank is its monetary liability,
i.e., the central bank is obliged to back the
currency with assets of equal value, to
enhance public confidence in paper
currency. The objectives are to issue bank
notes and give public adequate supply of
the same, to maintain the currency and
credit system of the country to utilize it in
its best advantage, and to maintain the
reserves. RBI maintains the economic
structure of the country so that it can
achieve the objective of price stability as
well as economic development because
both objectives are diverse in themselves.
For printing of notes, the Security Printing
and Minting Corporation of India Limited
(SPMCIL), a wholly owned company of the
Government of India, has set up printing
presses at Nashik, Maharashtra and Dewas,
Madhya Pradesh. The Bharatiya Reserve
Bank Note Mudran Private Limited
(BRBNMPL), also has set up printing
presses in Mysore in Karnataka and Salboni
in West Bengal. In all, there are four
printing presses.[50] And for the minting of
coins, SPMCIL has four mints at Mumbai,
Noida (UP), Kolkata and Hyderabad for coin
production.[50]

While coins and one rupee notes are minted

by Government of India (GoI), the RBI
works as an agent of GoI for distributing
and handling of coins. RBI also works to
prevent counterfeiting of currency by
regularly upgrading security features of
currency. For printing currency, RBI has
four facilities at Dewas, Nasik, Mysore and
Salboni. The RBI is authorized to issue
notes up to value of Rupees ten thousand
and coin up to one thousand. New notes of
Rupees 500 and 2000 have been issued on
8 November 2016. The old series note of
Rupees 1000 and 500 are considered illegal
and just paper from midnight on 8
November 2016. Earlier 1000 notes have
been discarded by RBI.

Banker's bank

Nagpur branch holds most of India's gold

deposits.[51][52][53][54]
Reserve Bank of India also works as a
central bank where commercial banks are
account holders and can deposit money.
RBI maintains banking accounts of all
scheduled banks.[55] Commercial banks
create credit. It is the duty of the RBI to
control the credit through the CRR, bank
rate and open market operations. As
banker's bank, the RBI facilitates the
clearing of cheques between the
commercial banks and helps the inter-bank
transfer of funds. It can grant financial
accommodation to schedule banks. It acts
as the lender of the last resort by providing
emergency advances to the banks. It
supervises the functioning of the
commercial banks and takes action against
it if the need arises. The RBI also advises
the banks on various matters, for example,
Corporate Social Responsibility.

Regulator of the Banking System

RBI has the responsibility of regulating the
nation's financial system. As a regulator and
supervisor of the Indian banking system it
ensures financial stability & public
confidence in the banking system. RBI uses
methods like On-site inspections, off-site
surveillance, scrutiny & periodic meetings
to supervise new bank licenses, setting
capital requirements and regulating
interest rates in specific areas. RBI is
currently focused on implementing norms.
Detection of fake currency
In order to curb the counterfeit money
problem in India, RBI has launched a
website to raise awareness among masses
about fake banknotes in the market.
www.paisaboltahai.rbi.org.in provides
information about identifying fake
currency.[56]

On 22 January 2014; RBI gave a press

release stating that after 31 March 2014, it
will completely withdraw from circulation
of all banknotes issued prior to 2005. From
1 April 2014, the public will be required to
approach banks for exchanging these notes.
Banks will provide exchange facility for
these notes until further communication.
The reserve bank has also clarified that the
notes issued before 2005 will continue to
be legal tender. This would mean that banks
are required to exchange the notes for their
customers as well as for non-customers.
From 1 July 2014, however, to exchange
more than 15 pieces of `500 and `1000
notes, non-customers will have to furnish
proof of identity and residence as well as
show aadhar to the bank branch in which
he/she wants to exchange the notes.

This move from the reserve bank is

expected to unearth black money held in
cash. As the new currency notes have added
increased security features, they would
help in curbing the menace of fake
currency.[57]

Developmental role
The central bank has to perform a wide
range of promotional functions to support
national objectives and industries.[18] The
RBI faces a lot of inter-sectoral and local
inflation-related problems. Some of these
problems are results of the dominant part
of the public sector.[58]
Key tools in this effort include Priority
Sector Lending such as agriculture, micro
and small enterprises (MSE), housing and
education. RBI work towards strengthening
and supporting small local banks and
encourage banks to open branches in rural
areas to include large section of society in
banking net.

Related functions
The RBI is also a banker to the government
and performs merchant banking function
for the central and the state governments. It
also acts as their banker. The National
Housing Bank (NHB) was established in
1988 to promote private real estate
acquisition.[59] The institution maintains
banking accounts of all scheduled banks,
too. RBI on 7 August 2012 said that Indian
banking system is resilient enough to face
the stress caused by the drought-like
situation because of poor monsoon this
year.[60]
Custodian to foreign exchange
The Reserve Bank has custody of the
country's reserves of international
currency, and this enables the Reserve Bank
to deal with crisis connected with adverse
balance of payments position.