The Reserve Bank of India is the backbone of the Financial System of the country. It has been entrusted by the people and the Government to control, supervise and promote the flow of money in the market. It also takes part in planning and development to maintain economic stability of the country and take the country towards growth.
Reserve Bank of India was established in 1935 and since then it has regulated the flow of Indian rupee in the country. The Reserve Bank is also responsible for managing other commercial banks through its various policies and directions.
Every bank is entitled to keep an amount of money with the RBI which serves as the limit to the amount of money that bank can lend to the public. There are various other policies and rules through which RBI keeps a check on the economy of the country.
Objectives of RBI
Being the backbone of the financial state of the country, RBI has various objectives as mentioned in the RBI preamble. Some of them are listed below:
- Primary Objectives: The primary objectives of RBI includes:
- Addressing the issue of Banknotes
- Maintaining monetary stability in the country
- To operate the credit system and currency in the country to its own advantage
- Remain independent of the political influence: In order to maintain financial stability and promote economic growth, RBI should be free from any political pressure and refrain from corrupted activities
- Fundamental objectives: RBI should serve as a central authority and serve as:
– Bank of all the other Commercial banks
– Only authority who has note issuing power
– Bank to the Government of India - Promote Economic Growth: RBI, along with maintaining price stability, should also design policies which promote economic growth within the framework
Functions of RBI
According to the RBI act 1934 RBI has various functions to serve. Some of them include:
- Monetary Authority: It plans and supervises the monetary policies designed for the country. The objective behind this is that every policy should be designed keeping in mind the idea of growth and at the same time should also maintain price stability.
- Financial System Supervisor: It designs the parameters under which all the banks of the country should work. The main aim here is to maintain the trust of the general public in the financial system of the country and provide them services which are cost-friendly.
- Foreign Exchange: All the foreingn exchange that happens between the countries is maintained and looked after by RBI. This is done so that easy and smooth foreign trade can happen and also foreign market remains maintained.
- Issuer of currency: RBI is the authority who issues notes, destroys the old notes and decides which currency is fit for circulation among the people. Demonetisation was done after taking advice from RBI and the new notes of 2000 came into circulation.
- Development: various national projects are funded by RBI. It undertakes development of the country as its objective and invests at various places in national interest.
Supervisory functions of RBI
RBI also has certain supervisory functions to fulfil. They include:
- Granting licence to commercial banks
- Inspection of the other banks
- Implementing Deposit Insurance scheme
- Controlling Non-Banking financial institutions
Conclusion
RBI has 27 regional and 4 sub offices. Most of these offices are located in the state capitals to ensure the right running of the state economy. It maintains the economy of a state through its capital. The Indian economy and its regulation is in the hands of the RBI. It designs and promotes policies which can boost our economy and help people grow substantially. It also keeps in mind to keep a check on price stability.
The Reserve Bank of India has a credit policy. The main aim of this policy is to ensure growth while keeping price stability in check. Promoting growth means more goods are produced in India and more services are provided in the country. This helps to increase GDP and has an overall positive impact on the economy of India.
Price stability, on the other hand, does not mean that there will be no alterations in the price of the things but it simply means that inflation should be controlled. RBI also aims to promote industrial and agricultural developments.