2.6 Functions of the RBI

2.6 Functions of the RBI

Who is the highest authority in your school? That’s right! It’s your school’s Principal. They set the rules, ensure that they’re followed, and oversee the institution’s smooth functioning. The goal is to ensure the highest standard of education for young students.

In banking, the central bank plays a similar role. The RBI is the central bank in the Indian banking system. In this chapter, we elaborate on some of the RBI’s significant functions as a regulatory authority.

Issuer of Currency

We have already detailed this function of the RBI in the previous chapters. You would recall that the RBI is the sole authority that issues currency notes in India, controls the system’s money supply, and distributes it through the banking network.

Banker to the Government

The RBI manages the government’s banking needs. The payment and receipts of the government accounts’ financial transactions route through the RBI. The RBI represents the Indian government at the International Monetary Fund (IMF) and the World Bank.

Custodian of Cash Reserve Ratio (CRR) of Banks

The banks that operate in India have to maintain specific amounts as reserves, viz. Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) as safety measures. While SLR is in the custody of the respective banks themselves, CRR is maintained with the RBI.

Custodian of India’s Foreign Currency Reserves

We have seen how the country holds foreign currency in its reserves to use if the Indian Rupee weakens and the foreign exchange market needs intervention. The RBI maintains these reserves.

Your grandparents might be able to tell you stories of going to bank branches for every banking need. But those are stories of the past. Currently, banking is at your fingertips. With most of the banking services available on your mobile phone and through the internet, the need to physically go to a branch disappears. Some banks operate on a completely digital model where all the processes, from account opening to performing transactions, are online. Today, essential banking needs are serviced round the clock and from anywhere!

Evolution of Quicker Payment Modes

We have explained different transactional banking modes that have become quicker and efficient. The traditional ones, like cheques, required.