RBI and its Role in the Indian Economy

Have you ever thought about how our apex financial institution that is RBI works and what kind of role does it plays in the Indian Economy?

RBI stands for the Reserve Bank of India. RBI was set up in 1935 by the( RBI act 1934). It’s our country’s Apex or the highest financial institution. Mr.Will Rogars was of the opinion that, after and wheel and fire the most important human Discovery was Central Bank. RBI announces credit and Monetary policy for the economy. Credit and monetary policy mean the policy by which the desired level of money flow and its demand is regulated.  Reserve Bank of India is the central bank of our country that works to bring stability to the country’s banking system and it also works to balance and stabilize the economy as a whole. The  Central Board of directors is responsible for the management of the Reserve Bank of India. 

RBI does not compete with commercial banks,  but it helps commercial banks whenever they need help. The central bank is generally owned by the government so as to avoid political interference,  most of the developed economy is the central bank functions with autonomous powers in this area(free from political interference). It doesn’t make a profit but it works, to achieve the development in the banking system of the country.RBI performs the various function as follows, RBI conducts free Bank business for the central government.

RBI performs the following functions to provide general banking services to the government for Eg. accepting government debts from the public, receiving money from the checks, drafts, etc. to the government. Providing temporary money to the government by selling Government Bonds managing public debt which includes rising of new loan repayment of loan renewal of the loan, etc. It also monitors government foreign exchange transactions. Representing International Organisation on behalf of the government to act as a consultant on financial matters, just as the commercial bank provides different services to their customer RBI provides various services to banks. Reserve Bank of India works as a clearinghouse, it’s like the fulfillment of interbank transactions is the cancellation house.

Every Bank has cheques,   drafts,  demands, etc from other banks every day. In this transaction, each bank has to pay some money from other banks and pay some money. To meet this transaction the representative of the bank gathers at the ripple house each day to decide the net transaction among themselves. This transaction is completed by chequing /drafting. The RBI instead of completing the bond with cash. ( Every bank has an account in RBI. According to that cheque/draft, the RBI deposit or the amount in the bank account or deduct the loan. In this way transactions in the banks are completed by RBI. Lender of Last Resort: RBI works cost lending institutions in the country. As it helps the troubled banks. Manages the country’s Foreign Exchange Reserves.

The Reserve Bank of India has to work to maintain the internal and external value of the currency. RBI also work in controlling the functioning of the banks- RBI controls their procedures for qualitative changes in the function of the banks. RBI prohibits them from doing business activities.RBI uses various tools like-CRR, SLR, Bank rate, MSF rate, OMO’s, Repo rate, Reverse repo rate, to put in place the required kind of credit and monetary policy.

RBI also carries out supervisory functions like- Licensing to banks, investigation of banks, controlling the functioning of, control over Bank management, work as a financial supervision board, etc. It also performs promotional functions like- Business  Bank business Administration, export financing enforcement, promoting industrial financing, promoting agricultural and rural credit, Cooperative banking, etc can take direct action, if banks do not follow RBI instructions. It is mandatory for other banks to take the approval of RBI regarding various matters like banks, reconstruction of the bank, etc.

Thus we can conclude that RBI is playing a very significant role in the development strategy of our country. It helps in the development of the banking system and Financial Institutions.  It has an eminent role in developing the Indian economy. 

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