Tuesday, 2 February 2016

A Beginners guide to the Reserve Bank of India (RBI)

In India, the Reserve Bank of India is the apex of the entire banking system. It was established in 1935 under the Reserve Bank of India Act of 1934. At that time, it was a shareholders’ bank with a share capital of five crores divided into five lakh shares, each of 100 rupees. The RBI was taken over by the Government of India in 1949 by purchasing all the shares. Its headquarters is situated in Mumbai, Maharashtra. It is the role of the RBI to regulate the monetary policy control the supply of money in the economy.

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The Reserve Bank of India performs some of the important functions in our country which are enlisted below:
  • It exercises credit controls.
  • It is the Government’s banker, agent and adviser.
  • It has the sole right to issue paper currency of all the denominations.
  • It is also the banker’s bank and the lender of the last resort.
  • The RBI is the custodian of foreign exchange reserves and has a key role in maintaining the exchange rate of rupee.
  • It acts as an agent of the Government of India to the International Monetary Fund
The economy is widely affected by various ups and downs like hike in food prices, rise in interest rates, recession and many more factors. Here comes the role of the Reserve Bank of India where it has to control the monetary policy and establish a monetary authority within the country to establish proper functioning of the economy.

The RBI sets some minimum limits on the cash reserve to be maintained by banks against their deposit liabilities. This minimum limit on the cash reserve is called the Cash Reserve Ratio (CRR), and it varies from 20 percent to 3 percent of the deposit liabilities of banks. 

Thus, RBI has complete control over the monetary policy of the country, monitors the gross domestic product and supervises the financial sector of the country. It is our faith in the Indian government and its central bank that we accept the paper currency issued by RBI as money.

Article by Anisha Dutta
She is a content evangelist who believes that the Science of today is the Technology of tomorrow. 
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