RESERVE BANK OF INDIA: ROLE AND FUNCTIONS

I NOTE ISSUING Issuance of Bank RBI is empowered to issue currency notes of the denominations of 2, 5, 10, 50, 100,200, 500, 1000,
AUTHORITY Notes 2000, 5000, 10000. They bear the signature of Governor of RBI
5000, and 10000 rupee notes are not in circulation
Re. 1 note issued by Ministry of Finance. It bears the signature of Secretary, Ministry of Finance
Minimum Reserve In India the note issue is based on the Minimum Reserve System. The issue department of RBI issues
System bank notes against 100% backing of approved assets ( i.e. Gold coins, Bullion, Foreign securities,
Rupee coins, Govt of India rupee securities ,bills of exchange and Promissory notes.), out of which
the value of Gold coins and foreign securities should not be less than 200 crores.
II Banker to the Banking Business RBI is obliged to transact banking business and manage the public debts of the Central
Government Government, and state Governments.
Public Debt Public debt management includes issuance of Treasury bills (Short term fund requirements) and
Management Government dated bonds (Long term fund requirements), by RBI on behalf of Central / state
Governments
Open market Conducting the Open Market Operations in respect of Treasury Bills and Government Securities
Operations
Ways and Means RBI provides the Ways and Means advances to Central and state Governments for their short term
Advances requirements ( Normally for about 3 months)
III Controlling the Monetary Policy RBI controls the money supply in the e conomy, co curb inflationary and deflationary tendencies.
Money supply Monetary Policy is announced once in a year.
IV Credit Supply Credit Control RBI ensures the monetary and credit supply through various instruments. Some of them are as
Instruments follows. These instruments are used by RBI either to infuse the liquidity or suck the excess
liquidity with banks / economy

Bank Rate It is the rate at which RBI rediscounts the Bills of commercial banks. Presently Bank Rate is 6.50%
CRR Cash Reserve Ratio: It specifies the cash balances required to be maintained by banks RBI as a
specific percentage on their adjusted net demand and time liabilities.
Presently CRR it is 4%
SLR . It specifies the minimum investment by a Bank in the approved securities. It is mentioned as
a percentage of adjusted demand and time liabilities of a Bank. Presently SLR is 19.25%. . A higher
percentage may be specified by RBI, to curb the excess liquidity with a Bank.
Open Market Open market operations include the buying and selling of government securities. When the economy
Operations is having the excess liquidity RBI sells government securities at attractive rate of interest, so that
people having excess money invest money in these securities there by excess liquidity in the
economy is removed.
Selective Credit This is a Qualitative Control. RBI stipulates higher margin and rate of interest in respect of loans and
Control advances against essential commodities and some other selected items to ensure hoarding of stock
and black marketing.
Market stabilization Normally RBI borrows funds from when ever required by Government. Some times RBI resorts to
scheme public borrowing to suck the excess liquidity in the economy.
 Fixation of When ever required RBI fixes the Inventory norms for banks finance Eg: Tandon Committee norms,
Inventory Norms Chore Committee norms, Nayak committee norms.
Directed Lending RBI specifies the targets to be achieved by banks in respect of certain sector. Eg: Priority sector
advances. 40% to priority sectors, 10% to weaker sections etc
Control over Even though the deposit interest rates and lending rates are deregulated , certain interest rates like
Interest rates Interest rates on export credit etc are regulated by RBI
V Banker to Licensing Authority A bank should comply with the minimum stipulations of RBI to do banking business
Banks
Scheduled Bank A bank whose name is entered in the second schedule to the RBI Act is called a scheduled bank
Status to banks
Refinance Finance against the long term loans to the borrowers
Rediscounting of Liquidity to banks against the bills discounted by them to their clients
Bill
Liquidity Repo and Reverse Repo both put together is called Liquidity adjustment facility. RBI finances to
Adjustment Facility banks against purchase of securities upon a condition that such securities are sold back by RBI to
concerned bank on repayment of the loan. Presently the Repo rate is 6.25%.
Reverse repo facilitates the banks to park their excess funds with RBI. Now the Reverse Repo rate is
6.00%
Lending RBI lends @ Bank rate. Presently Bank Rate is 6.50%. Lending at SLR securities is @Marginal
standing facility rate, which is presently 6.50%
Lender of last resort Banks look towards RBI as a lender of last resort.
VI Regulator of Regulation of Reserve Bank of India is the regulator of money market, Credit market and Forex Markets
Financial Financial Markets
system
Rating System for RBI adopts CAMELS rating for rating the performance of Banks
Banks
Issuance of RBI as per the powers derived from B.R.Act issues guidelines to banks in respect of certain key
directions to areas of operations. Like IRAC norms , CAR etc.
commercial banks
Regulator of Payment systems like EFT, RTGS are effected through RBI
Payment and
settlement system
VII Management of Forex reserves RBI controls the forex reserves as per the powers drawn from FEMA
Forex Reserves
VIII Improvement Institution of Committees like Talwar committee, Goiporia committee are instituted for framing guidelines for
of Customer customer service customer service
service in Bank committees
03.04.2019 Ombudsman Ombudsman scheme is instituted to redress the grievances of customers against the banks
scheme