Reserve Bank Of India

The Reserve Bank of India is the central bank of India, was established on April 1, 1935 during the British-Raj in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Kolkata, Bengal, but was permanently moved to Mumbai in 1937. Though originally privately owned, the RBI has been fully owned by the Government of India since nationalization in 1949.

The Reserve Bank of India was set up on the recommendations of the Hilton Young Commission. The commission submitted its report in the year 1926, though the bank was not set up for nine years.

RBI is the banker to banks—whether commercial, cooperative, or rural. The relationship is established once the name of a bank is included in the Second Schedule to the Reserve Bank of India Act, 1934.

Main objectives

Monetary Authority

• Formulates implements and monitors the monetary policy.
• Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.

Regulator and supervisor of the financial system

• Prescribes broad parameters of banking operations within which the country's banking and financial system functions.
• Objective: maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective redresses of complaints by bank customers.

Manager of exchange control

• Manages the Foreign Exchange Management Act, 1999.
• Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Issuer of currency

• Issues and exchanges or destroys currency and coins not fit for circulation.
• Objective: the main objective is to give the public adequate supply of currency of good quality and to provide loans to commercial bank to maintain or improve the GDP (Gross Domestic Product).

Developmental role      

• Performs a wide range of promotional functions to support national objectives.

Related functions

• Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.
• Bank to banks: maintains banking accounts of all scheduled banks

Main Functions of RBI

Reserve Bank of India is the main monetary authority of the country. It formulates implements and monitors the monetary policy and thereby plays a key role in maintaining price stability and ensuring adequate flow of credit to productive sectors. RBI is the regulator and supervisor of the financial system in the country. 


It prescribes broad parameters of banking operations within which the country's banking and financial system functions. It manages the foreign exchange of the country. Performs merchant banking function for the central and the state governments; also acts as their banker. Maintains banking accounts of all scheduled banks. Issues and exchanges or destroys currency and coins not fit for circulation.

Role  Of Reserve Bank Of India

The reserve Bank of India is the central bank of India. Therefore, it performs all those functions which are essentially being performed by the central bank of a country. The important functions of the reserve Bank of India are as follows:

1.Issue of notes: The Reserve Bank of India enjoys monopoly in the issue of currency notes as central Bank of the country. All the currency notes except one rupee note are issued by RBI. One rupee note and all coins of small magnitude are issued by the Government of India and are circulated through the Reserve Bank of India.

2.Banker, Agent and advisor to the Government:  The reserve bank of India acts as the banker, agent and advisor to the Government of India. It accepts payments for the account of the union and state governments and also makes payments on behalf of the Government.

3.Banker’s Bank: As an apex bank the RBI acts as banker of the banks and lender of the last resort. Under the RBI Act, the bank has been vested with extensive powers of supervision and control over all scheduled commercial and cooperative banks.

4.Custodian of Foreign Exchange Reserves: One of the important functions performed by the Reserve Bank is that of external value of the rupee. Apart from adopting appropriate monetary policies for the economic stability in the country and thereby exchange stability in the long-term, the Reserve Bank has to ensure that the normal short-term fluctuations in trade do not affect the exchange rate.

5.Regulation of Banking System: The prime duty of the reserve Bank is to regulate the banking system of our country in such a way that the people of the country can have trust in the-banking.

6. Clearing House Functions: The RBI operates clearing houses to settle banking transactions. The RBI manages 14 major clearing houses of the country situated in different major cities.

7.Credit Control: Credit control is a very important function of RBI as the Central Bank of India. The methods of credit control aim at influencing the quality of use of credit with respect to a particular area or field of activity.

Role of RBI in Agricultural Finance

Establishment of Agricultural Credit Department in 1935

Development of Co-operative Movement

Funding LDBs

Setting up ARDC in 1963

Encouragement of RRBs

Establishing NABARD in 1982

CRR ( cash reserve ratio): refers to a portion of deposits (as cash) which banks have to keep/maintain with the RBI.

SLR: Besides the CRR, banks are required to invest a portion of their deposits in government securities as a part of their statutory liquidity ratio (SLR) requirements.