Objectives and Functions of Reserve Bank Of India

Reserve Bank of India (RBI)

The central bank in India is known as Reserve Bank of India. Under the Reserve Bank of India Act of 1934, the Reserve Bank of India was established on April 1, 1935 with a private paid-up capital of 5 crores. RBI was nationalized on January 1, 1949. The Reserve Bank of India (RBI) controls the issue and supply of the Indian rupee. RBI is the regulator of the entire Banking in India. RBI plays an important part in the Development Strategy of the Government of India.

RBI regulates commercial banks and non-banking finance companies working in India. It serves as the leader of the banking system and the money market. It regulates money supply and credit in the country. The RBI carries out India's monetary policy and exercises supervision and control over banks and non-banking finance companies in India.

RBI is the apex bank of India which supervises and regulates the entire banking sector as well as formulates the monetary policy of India.

Functions of Reserve Bank of India

Monetary Functions:

1. Currency Issue: The bank also destroys banknotes 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. Reserve Bank of India has the sole right to issue notes of denominations starting from 2 and above. Currency note of 1 and all currency coins are issued by the finance ministry of Government of India but the distribution of one rupee notes and currency coins is done by the RBI as an agent of the Government of India. The 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. 

2. Banker to the Government: As a banker to the Government of India, the RBI maintains its accounts, receive payments into and make payments out of these accounts. The RBI also helps the Government of India to raise money from the public via issuing bonds and government-approved securities. The RBI is a banker, advisor, and agent of the central government and of all state governments. It manages government bonds, government accounts, currency coins and notes of Rs 1, and also provides loans to the government.

3. Banker of the Bank: 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. Commercial banks create credit. It is the duty of the RBI to control the credit through the CRR, repo 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.

4. Credit Control: The RBI controls the process of credit creation and money supply in the economy with the help of various tools of monetary policy.

5. 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. The RBI has the responsibility of maintaining the value of rupee vis-a-vis other currencies under the fixed exchange rate regime. Under free exchange rate system where exchange rate is determined by the market, RBI maintains the value of Indian currency by buying and selling foreign exchange in the open market as and when required.

The RBI is also the custodian of India's reserves of foreign currencies. It also administers foreign exchange reserves by checking the inflow or outflow of foreign exchange.