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Roles &
Functions of
Reserve
Bank of
India
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Reserve Bank of India (RBI) is the Regulator of India’s Banking System and therefore is the
most prominent bank in our country. It is also the central bank and plays a crucial role in
the Indian Economy. If you are preparing for any various Government Recruitment Exams
mainly the Banking Insurance or SSC. Then the role and functions of the Reserve Bank of
India can't be missed. This topic is an important part of the Current Affairs & General
Awareness section. Therefore, it is crucial that you study & get well-versed with it. Being
aware of such important topics will help you score more marks in your exams. It is essential
that you are familiar with Banking & Finance terms & have a basic knowledge about RBI, to
begin with. Read the article on Roles & Functions of Reserve Bank of India. Know all details
on the Probationary, Supervisory Role, the Organisational Structure, its role in economic
development & more!

Roles & Functions of RBI - Introduction

India is one of the fastest-growing economies in the world, with a population over 1.2
Billion, which has become the hub for global investment. Various factors manage and
influence the Indian economy, RBI is one amongst them. It is one of the oldest
institutions behind the success of the Indian economy. And RBI is also known as the
Banker’s Bank.

The RBI guards the Indian economy and it is behind the growth in FOREX, Exports,
Capital Markets, and various other areas of the economy. Moreover, these areas are growing
at a healthy rate. It plays a pivotal role in strengthening, developing, and diversifying the
country’s economic and financial structure. It is the topmost bank in the Indian Banking
System.

Structure Of The Indian Banking System

1. Reserve banks of India.

2. Indian Scheduled Commercial Banks.
o State Bank of India and its associate banks.
o Twenty nationalized banks.
o Regional rural banks.
o Other scheduled commercial banks.
3. Foreign Banks
4. Non-scheduled banks.
5. Co-operative banks.

The RBI is India’s Central banking institution. It manages the monetary policy of the
Indian rupee. It was established on 1st April 1935, in line with the provisions of the Reserve
Bank of India Act, 1934. It was initially privately owned and managed but since
nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

Preamble Of The RBI

The Preamble of the Reserve Bank of India describes the basic Functions of Reserve Bank of
India as: "to regulate the issue of Banknotes and keeping of reserves with a view to

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securing monetary stability in India and generally to operate the currency and credit
system of the country to its advantage; to have a modern monetary policy framework to
meet the challenge of an increasingly complex economy, to maintain price stability while
keeping in mind the objective of growth."

The RBI has four zonal offices at:

1. Chennai
2. Delhi
3. Kolkata
4. Mumbai

It has 20 regional offices and 11 Sub-offices.

Organizational Structure of RBI:

 The RBI's affairs are commanded by a central board of directors. This board is
appointed by the Government of India for a time span of 4 years.
 Full-time officials: There are four Deputy Governors. And the current Governor of
RBI is Mr. Shaktikanta Das.
 The 4 Deputy Governors are Mr B.P. Kanungo, N. S. Vishwanathan, M. K.
Jain.
 Nominated by Government: There are 10 Directors from different fields and 2
government Officials

Functions of RBI in Indian Banking System

1. Monetary Authority: It chooses the amount of money required to be delivered to
the economy in order to improve the exchange rate, sustaining a good equilibrium of
expense, achieve financial stability, regulate inflation, strengthen and support the
basic banking system.
2. The issuer of the currency: It has the only authority in India to produce
currency. It also takes action to regulate the passage of fake money.
3. The issuer of Banking Permit: According to Sec 22 of the Banking Regulation
Act, a bank is not authorized to start its functions devoid of attaining a license from
the RBI.
4. Banker’s to the Government: It acts as financier both to the state and the central
governments. It delivers short-term credit. It governs all new matters of government
lends, maintaining the government debt unsettled, and taking care of the market for
the government’s securities. It counsels the government on banking and monetary
subjects.
5. Banker’s Bank: It is the bank of all banks in the country as it delivers the loan to
bankers/banks, rediscounts the invoice of banks and receives the payment of banks.
6. Financier of last resort: All the other banks can borrow from the Reserve Bank of
India by keeping qualified securities as a deposit at the time of crisis or need.
7. Banker and debt controller of government: It retains credits of Governments
devoid of charging any interest, accepts and makes the compensation, carry exchange
payments, and aid to float new loans and control public debt, it also acts as a guide to
Government.

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8. Money supply and Regulator of Credit: To manage demand and supply of cash
in Economy by Open Market Actions, Credit Ceiling, and much more. It has to meet
the credit necessities of the remaining banking system. It requires sustaining price
stability and an elevated rate of economic growth.
9. Act as clearinghouse: In support of the settlement of banking dealings, RBI
governs 14 clearing houses. It enables the exchange of devices and processing of fee
instructions.
10. Controller of foreign exchange: RBI acts as a guardian of FOREX. It oversees
and implements the facility of the Foreign Exchange Management Act (FEMA), 1999.
It buys and retails foreign currency to conserve the exchange rate of Indian rupee v/s
overseas currencies.
11. Regulator of Economy: RBI manages the money supply in the system, tracks the
different vital indicators such as Inflation, GDP, etc.
12. Managing Government securities: It directs investments in organizations when
they invest indicated minimal amounts of their total liabilities/assets in the
government securities.
13. Regulator and Supervisor of Expense and Settlement structures: The
Payment and Clearing methods/structures Act of 2007 (PSS Act) provides the
Reserve Bank of India oversight power for the expense and clearing systems in the
country. It emphasizes on the development and working of safe, protected, and
efficient payment and reimbursement mechanisms.
14. Developmental Role: This part includes the development of the standard of the
banking system in India and guaranteeing that credit is obtainable to the productive
areas of the economy. It delivers a wide range of publicity functions to upkeep
national objectives. It similarly includes establishing organizations designed to shape
the country’s financial set-up. It also supports in expanding access to inexpensive
financial services and endorsing financial learning and literacy
15. Publisher of economic data and additional data: Reserve Bank of India
preserves and provides all crucial banking and additional economic data, articulating
and critically assessing the economic guidelines in India. It collects, combines, and
publishes information regularly.
16. Exchange manager and regulator: Reserve Bank of India represents India as an
associate of the (IFM) International Monetary Fund. The majority of the commercial
banks are certified traders of the RBI
17. Banking Ombudsman Scheme: Reserve Bank of India presented the Banking
Ombudsman Scheme in the year 1995. In this scheme, the accusers can file their
objections in any form, comprising online and can similarly file a petition to the RBI
against the grants and the other verdicts of the Banking Ombudsman
18. Standards Board of India and Banking Codes: To calculate the presentation of
banks in contrast to Codes and standards centered on acknowledged global practices,
the Reserve Bank of India frames the Standards Board of India (BCSBI) and Banking
Codes.
19. Impartial Practices Codes For Investors:- RBI framed the Fair Practices Code
for Investors which was conveyed to banks to protect the interest of the debtors. All
the banks are expected to trail the codes formulated by RBI.
20. Miscellaneous Functions: Reserve Bank of India gathers, collates, and issues all
monetary and banking information frequently in its weekly statements in the RBI
Notice (monthly) and in the Report on Cash and Finance.
21. The endowment of Industrial Finance: Fast industrial growth is vital to the
growth of the economy. Providing satisfactory and timely acknowledgment to small,

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medium, and large businesses are very significant. The RBI has a key role in setting
up distinct financial establishments such as ICICI, IDBI Ltd, and EXIM BANK, etc.
22. Provisions of Training: It has always strived to provide crucial training to the
workforce of the banking trade. The RBI has framed the bankers' training
institutions at several places. BSC (Bankers Staff College), NIBM (National Institute
of Bank Management), and CAB (College of Agriculture Banking) are few to mention.

The RBI’s Role In Current Scenario

The part of RBI in the economy of India has altered as per the situation in the country. In
April 2019 the Reserve Bank of India took the monetary policy verdict to lower its
borrowing rate to 6%. This was the 2nd rate cut for the year 2019 and is anticipated to have
a constructive impact on the borrowing rate through the credit market more significantly.
Earlier to April, credit rates in India were persistently high, in spite of the central bank’s
standing, which has been limiting borrowing across the economy. The central bank needs to
contend with a slightly unstable inflation rate that is expected at 2.4% in the year 2019,
2.9% to 3% in the initial half of 2020, and 3.5% to 3.8% in the second half of 2020.

RBI's Role in Economic Development

The Reserve Bank of India has a crucial role in the Indian economy as it makes or breaks
the economy. Following mentioned are the regions where RBI plays a significant role

1. Development of the banking system

2. Development of financial institutions
3. Development of backward areas
4. Bringing Economic stability
5. Facilitating Economic growth
6. Preparing Proper interest rate structure

RBI's Role in Promoting Schemes And Policies

Announcing schemes and policies which profit the community as well as the government is
one of the main functions of RBI. Below stated are the segments RBI selects for economic
development

1. Promotion of commercial banking

2. Promotion of cooperative banking
3. Promotion of industrial finance
4. Promotion of export finance
5. Promotion of credit guarantees
6. Promotion of differential rate of interest scheme
7. Promotion of credit to priority sections including rural & agricultural sector
8. Promotion of credit to weaker sections

Supervisory Functions of RBI

1. Providing authorization to banks & managing the number of new branches

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2. Doing a periodical inspection of banks

3. Monitoring Non-Bank Financial Organizations: The Non- Bank Financial
Establishments are not inclined by the working of monetary policy. RBI has a right to
give orders to the NBFIs regarding their functioning.
4. Execution of the Deposit Insurance Scheme: To guard the credits of small depositors,
RBI works to devise the Deposit Insurance Scheme in the situation of a bank failure.
(For bank credits below 1 Lakh.)

Prohibitory Functions of RBI

1. It cannot provide any direct monetary support to any trade, industry, or business
2. It cannot purchase its own share
3. It cannot buy shares of any industrial and commercial undertaking
4. It cannot purchase any immovable property
5. It cannot give loans on the security of shares and property

RBI Functions - General Terms

 Monetary policy denotes the use of monitoring tools under the regulator of the
RBI in order to control the accessibility, cost, and use of cash and credit.
 Cash Reserve Ratio (CRR): CRR is decided by the RBI and the percentage
changes every year. Banks need to hold a certain amount of their credits in the form
of cash with the Reserve Bank of India. RBI follows CRR either to drain additional
liquidity from the economy or to discharge additional reserves required for the
progression of the economy.
 Statutory Liquidity Ratio (SLR): It is the sum that commercial banks are
obligatory to maintain in the form of gold or government permitted securities before
issuing credit to the clienteles.
 Repo Rate: It is the rate at which the Reserve Bank of India credits out cash to
commercial banks is called Repo Rate. Every time banks face restraint of resources
they can take from the RBI, against safeties. If the RBI surges the Repo Rate,
deriving becomes pretty costly for banks and vice versa. As a device to regulate
inflation, RBI surges the Repo Rate, making it more costly for the banks to take from
the RBI with a vision to limit the availability of cash. Similarly, the RBI will do the
exact reverse in a deflationary situation.
 Reverse Repo Rate: It is a rate at which the Reserve Bank of India is prepared to
borrow from the commercial banks is entitled to reverse repo rate. If the RBI surges
the reverse repo rate, it means that the RBI is keen to give a good interest rate to
banks to place their money with the RBI. This results in a reduction in the amount of
cash accessible for bank customers as banks prefer to credit their money with the
RBI as it assures higher security. This obviously leads to a higher level of interest
which the banks will claim from their clients for loaning money to them.

The Repo Rate and Reverse Repo Rate are significant tools through which the
Reserve Bank of India can govern the accessibility and the supply of cash in the
economy.

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Fiscal Policy: It is associated with direct taxes and government expenditure. When direct
taxes surges and expenditure of government increases than the nonrefundable Income of
the public decreases and hence the demand lessens.

 On the basis of a calculation of the current and growing macroeconomic condition at

its meeting today, the MPC (Monetary Policy Committee) decided to preserve the
policy repo rate below the liquidity adjustment facility (LAF) unmoved at 5.15
percent.
 Subsequently, the reverse repo rate below the LAF remains at 4.90 percent, and the
Bank Rate and marginal standing facility (MSF) rate at 5.40 percent.
 The verdict of the MPC is dependable with an impartial stance of the monetary plan
in agreement with the objective of attaining the medium-term objective for consumer
price index (CPI) inflation of 4 % within a group of +/- 2 percent while supporting
development.

Marginal Term
Policy Reverse Savings
Standing Bank Base Deposit
Repo Repo CRR SLR MCLR Deposit
Facility Rate Rate Rates >
Rate Rate Rate
Rate 1 year

8.95%- 7.70%- 3.50% - 6.00%-

5.45% 4.90% 5.40% 5.40% 4% 19.5%
9.45% 8.05% 4.00% 6.75%

Hope the above information on the Roles & Functions of Reserve Bank of India was helpful.
We encourage you to download the PDF notes to read this topic carefully and revise it
before the exams. Also, go through the functions, probationary and supervisory functions,
general terms, and concept of repo rate and reverse repo rate to ace in the GA section of the
competitive exams. You should also use the Testbook App to boost your preparations for the
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