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Functions of Central Bank of India [Autosaved]

The Central Bank of India regulates the banking system, issues currency, and manages monetary policy to ensure financial stability and economic growth. It acts as the government's banker, supervises commercial banks, and implements credit control measures to maintain economic stability. Additionally, it promotes banking services, supports development, and manages foreign exchange reserves.

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shivangiraii911
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6 views10 pages

Functions of Central Bank of India [Autosaved]

The Central Bank of India regulates the banking system, issues currency, and manages monetary policy to ensure financial stability and economic growth. It acts as the government's banker, supervises commercial banks, and implements credit control measures to maintain economic stability. Additionally, it promotes banking services, supports development, and manages foreign exchange reserves.

Uploaded by

shivangiraii911
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FUNCTIONS OF

CENTRAL BANK OF
INDIA
NAME- Shivangi Rai
CLASS- XI C
SUBJECT- Banking
Introduction
 Central Bank of India is the main bank that controls and regulates the entire banking system in the country . It is
responsible for issuing currency notes and managing monetary policy . It acts as the government’s bank and
supports commercial banks.
 Role of the Central Bank:
1. Its main goal is to maintain financial stability and economic growth.
2. Acts as the regulator and supervisor of all banks in India to ensure stability.
3. Provides financial support to commercial banks, acting as the “lender of last resort.”
4. Maintains cash reserves of banks to ensure liquidity.
5. Helps implement government’s economic policies related to banking and finance.
6. Promotes the growth of banking services, especially in rural and underdeveloped areas.
 The Central Bank supervises and regulates all banks in the country.
 It ensures that banks follow rules and maintain financial discipline.
 It protects depositors’ money by monitoring banks’ activities.
 It can take action against banks if they do not follow guidelines.
Issue of Currency
 Sole Authority to Issue Currency Notes
◦ The Central Bank has the exclusive right to issue paper currency in India (except ₹1
notes, which are issued by the Government of India).
◦ Ensures uniformity in currency and avoids fake currency circulation.
◦ Helps in maintaining public confidence in the monetary system.
 Controls Money Supply
◦ By regulating the amount of money in circulation, it controls inflation and deflation.
◦ It ensures the right amount of money is available in the economy to support growth
without causing instability.
Banker to the Government
 Manages Government Accounts
• The Central Bank acts as a banker, agent, and advisor to the central and state
governments.
• It maintains government accounts, receives and makes payments on behalf of the
government.
 Handles Public Debt
• It manages the issuance of government bonds, treasury bills, and other borrowing
tools.
• Helps the government raise funds when needed.
 Provides Loans to the Government
• During emergencies or budget deficits, the Central Bank may lend money to help
manage the government’s finances
Regulator and Supervisor of
Banks
 Maintains Banking Standards
The Central Bank issues guidelines and policies to ensure healthy practices in the
banking sector.
 Ensures Financial Stability
It monitors the functioning of banks to prevent failures and crises in the financial
system.
 Performs Regular Inspections
The Central Bank conducts audits and inspections to check the health and
compliance of banks.
 Issues Banking Licenses
It grants licenses to new banks and decides on mergers, expansions, and closures.
Manager of Foreign Exchange Reserves

The Central Bank manages the country’s foreign exchange reserves.


It ensures stability in the foreign exchange market.
Helps in controlling the exchange rate of the rupee against foreign currencies.
It buys and sells foreign currency to maintain balance in the economy.
Ensures that India has enough foreign currency to pay for imports and debts.
Also helps in preventing currency crisis and supports international trade.
Developmental Functions
◦ Promotes banking habits among people, especially in rural areas.
◦ Helps in the financial inclusion of weaker sections of society.
◦ Supports agricultural and industrial development by giving loans to development
banks.
◦ Provides guidance and training to other banks.
◦ Encourages digital banking and modern payment systems.
◦ Helps in the development of money and capital markets in the country.
Credit Control Measures
 Meaning:
Credit control refers to the regulation of credit (loans and advances) by the Central
Bank to ensure price stability and economic growth.

 Objectives:
◦ Control inflation and deflation
◦ Ensure proper credit flow to priority sectors
◦ Maintain overall economic stability
Types of Credit Control
1. Quantitative Measures (General tools)
◦ Bank Rate Policy: Increasing or decreasing the rate at which RBI lends to commercial
banks.
◦ Open Market Operations (OMO): Buying/selling government securities to control money
supply.
◦ Cash Reserve Ratio (CRR): Portion of deposits banks must keep with RBI.
◦ Statutory Liquidity Ratio (SLR): Minimum percentage of deposits banks must maintain in
liquid form.
2. Qualitative Measures (Selective tools)
◦ Margin Requirements: Changing margin on loans to control borrowing.
◦ Credit Rationing: Limiting credit to certain sectors.
◦ Moral Suasion: RBI persuading banks to act in public interest.
Conclusion
The Central Bank plays a crucial role in maintaining the stability and growth of the
country’s economy.
It ensures smooth functioning of the banking system and proper monetary control.
With its regulatory, supervisory, and developmental roles, it acts as the backbone of
India's financial system.
A strong and efficient Central Bank = A stable and growing economy.

“A strong economy begins with a strong


financial foundation.”

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