Q: What are the functions of Reserve Bank of India ?

Ans: India's central bank is known as the Reserve Bank of India (RBI). Its role is to foster financial stability and regulate India's currency and credit.

The core function of the RBI is to set the lending rate between banks. However, as the overseer of India's monetary policy, the bank performs several other functions that are important to the Indian economy.

Issuer of Currency

Although the government is the technical issuer of currency, the RBI actually distributes the notes and coins into the marketplace. It also takes in and destroys currency; in other words, as bills and coins wear out, the RBI ensures that fresh and clean currency is in the marketplace.

A Bank to Banks

Not only does the RBI set the lending rate between banks, it acts as a banker's bank. When banks need money, the RBI can lend money to them since it holds some of their reserves.
In addition to supporting other banks, the RBI has the power to inspect and audit other banks.

Government's Bank

As the central bank, the RBI is the bank of the government. Just like the private banks, RBI can lend money to the government itself; this includes the federal government as well as state governments.

As administrator of the entire banking system of India, the RBI performs other functions that are not related to money or money management.

Licenses

Banks in India need licenses to open, to open branches or close existing branches. The RBI holds the key to the licenses for these banks. This prevents unfettered growth or unmanageable competition among banks in different areas.

Inspector

Earlier, we mentioned that RBI can inspect other banks. Since it is the banker's bank, the RBI performs inspections of banks across India: investigators look at the books, assets and liabilities to ensure banks are both in good health and acting above-board.


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