RBI (BANKS)

The Reserve Bank of India (RBI), as the central banking
institution of India, is the backbone of the Indian financial system.

As the custodian of the country’s economic and financial stability, it
plays a crucial role in India’s economic development and smooth
functioning of the entire banking sector
 The Reserve Bank of India, abbreviated as the RBI, is the

Central Bank of India, meaning it is the apex body in the
Indian financial system.
 It is owned by the Union Ministry of Finance.
 It acts as a regulatory body, responsible for the regulation
of the Indian banking system as well as the control,
issuing, and maintaining money supply in the Indian
economy.
 To regulate the issue of banknotes
 To maintain reserves with a view to securing monetary
stability and
 To operate the credit and currency system of the country to
its advantage.
 To maintain price stability while keeping in mind the objective
of growth.
Major functions of the RBI can be seen under the following 2 heads:
Monetary Functions of RBI
Monetary Functions of the Reserve Bank of India include

those functions which are concerned with money and money
supply in the economy. Major functions coming in this category
include:
 Issuer of Bank Notes: The Reserve Bank of India has the

monopoly of issuing currency notes except for 1 Rupee note
and coins.
o The 1 Rupee note and the coins of all
denominations are minted and issue by the
Government of India, not the RBI. But, they
are circulated by the RBI.
o The RBI issues currency notes under a system
called Minimum Reserve System.
 Banker to the Government: The RBI acts as a banking
agent and financial advisor to the Central as well as the
State Governments. In this capacity, the RBI:
o Manages Government accounts and treasuries.
o Keeps deposits of the Government.
o Lends to the Governments without any interest for
the short term
o Buys and sells Government Securities (G-Secs) on
the Government’s behalf.
o Gives monetary and financial advice to the
Governments.
 Bankers’ Bank: The RBI is the banker of all Scheduled
commercial banks (SCBs). In this capacity, it performs the
following functions:
o Keeps the reserves of banks in the form of Cash
Reserve Ratio (CRR) with itself.
o Provides financial assistance to banks against
mortgaged securities
o Rediscounts Bills of Exchange.
 Lender of Last Resort: It also acts as a lender of last
resort for the Scheduled Commercial Banks (SCBs). Usually,
banks and other financial institutions borrow and lend
among themselves to meet their financial needs. But, in
times of crisis, the SCBs approach the RBI to get financial
assistance.
 Custodian and Manager of Foreign Exchange
Reserves: In order to stabilize the external value of Indian
currency, the RBI maintains the reserves of foreign
currencies to stabilize the exchange rate.
o This function of the RBI also helps promote
international trade.
 Controller of Credit or Money Supply: It uses its
monetary policy tools to control the volume of money supply
according to the economic situation of the nation.
o This helps in controlling inflation and deflation and
hence stabilizing the general price level in the
economy.
General Functions of RBI
The General Functions of the RBI include functions related to general

regulation and promotion of the banking system so as to maintain
the health and growth of the banking system in the country. Major
functions included in this category are as follows:
 Regulator of the Banks: The RBI Act of 1934 and the

Banking Regulation Act of 1949 entrust the RBI with the
powers to regulate the banks in the country. In this capacity,
the RBI performs functions such as:
o Licensing banks,
o Prescribing minimum requirements of paid-up capital
and reserves, etc.
 Promotional Functions: The RBI works towards the
promotion of the Indian Financial System through functions
such as
o Enabling expansion of the Commercial Banks in
terms of their branches in the country or aboard,
n 1957, the RBI adopted the Minimum Reserve System for issuing
currency notes. As per this system, to issue money, the RBI
maintains Gold and Foreign Currency Reserves of worth ₹200
crores as a backup.
Note: Out of this reserve, a minimum of ₹115 crores should be in

Gold.
EXTRA INFORMATION.
Currency Notes Printing and Coins

Minting in India
– Currency Notes: Currency Notes are printed in 4 presses in India – Nasik (Maharashtra), Dewas
(Madhya Pradesh), Mysore (Karnataka), and Salboni (West Bengal)
a. Of these, Nasik and Dewas presses are owned by the Government of
India; whereas, Mysore and Salboni presses are owned by the RBI through its wholly owned
subsidiary Bharatiya Reserve Bank Note Mudran Ltd. (BRBNML).
– Coins: Coins are minted in 4 mints located in Mumbai, Hyderabad, Calcutta and Noida.
a. All the 4 mints are owned by the Government of India.
– As per the Indian Coinage Act of 1906, Coins can be issued up to the denomination of ₹1000.
– As per the RBI Act of 1934, Currency Notes can be issued up to the denomination of ₹10,000.
– The ₹1 note is the only currency note which bears the signature of the Finance Secretary of the
Government of India, and not of the Governor of the RBI.
a. All other notes bear the signature of the Governor of the RBI.

RBI (BANKS)

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The Reserve Bank of India (RBI), as the central banking

institution of India, is the backbone of the Indian financial system.

 The Reserve Bank of India, abbreviated as the RBI, is the

Monetary Functions of RBI

Monetary Functions of the Reserve Bank of India include

 Issuer of Bank Notes: The Reserve Bank of India has the

The General Functions of the RBI include functions related to general

 Regulator of the Banks: The RBI Act of 1934 and the

Note: Out of this reserve, a minimum of ₹115 crores should be in

Currency Notes Printing and Coins

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