The main function of RBI is to monitor the monetary policy of India. The main objectives of which are maintaining price stability, ensuring financial stability and adequate flow of credit in all the sectors.
Issue of Banknotes
The Reserve Bank has the monopoly of note issue in the country. It has the sole right to issue currency notes of all denominations except one-rupee notes. One-rupee notes are issued by the Ministry of Finance of the Government of India. The Reserve Bank acts as the only source of legal tender because even the one-rupee notes are circulated through it. The Reserve Bank has a separate Issue Department, which is entrusted with the job of issuing currency notes.
Banker to Government
The second significant capacity of the Reserve Bank is to go about as the Banker, Agent, and Adviser to the Government of India and states. It plays out all the Roles of the State and Central Government and it also tenders helpful exhortation to the administration on issues identified with monetary and fiscal strategy. It also manages the public debt of the government.
Custodian of Cash Reserves of Commercial Banks
The commercial banks hold deposits in the Reserve Bank and the latter has the custody of the cash reserves of the commercial banks.
Custodian of Country’s Foreign Currency Reserves
The Reserve Bank is the custodian of India’s foreign exchange reserves. It maintains and stabilizes the external value of the rupee, administers exchange controls and other restrictions imposed by the government, and manages the foreign exchange reserves.
Lender of Last Resort
The commercial banks approach the Reserve Bank in times of emergency to tide over financial difficulties, and the Reserve bank comes to their rescue though it might charge a higher rate of interest.
Central Clearance and Accounts Settlement
Prescribes broad parameters of banking operations within which the country’s banking and financial system functions.
Controller of Credit
The RBI has been assigned the role of controlling and supervising the bank system in India. The RBI is responsible for controlling the overall operations of all banks in India. These banks may be:
– Public sector banks
– Private sector banks
– Foreign banks
– Co-operative banks
– Regional rural banks