Reservation Bank of India (RBI) has play multiple roles in India, which can be broadly categorized as traditional role, supervisory role and promotional role.
Like any other Central Bank, Reservation Bank of India (RBI) performs the following roles, which can be termed as traditional roles. These include issuing and management of currency in the system.
The bank also ensures exchange and obliteration of coins and notes which are not fit for circulation. The bank manages the government accounts and advises government on economic matters.
Also read | Major Elements of New Economic Policy 1991.
Reservation Bank of India (RBI) changes CRR, repo rate and reverse repo rates for fractional deposit lending.
The bank also lends to commercial banks in times of extreme need, which is called Discount lending or Lender of last resort. RBI also acts as a merchant banker for government.
The bank finances the needs of central and state government. The Bank also conducts research on economic matters and determines the exchange rates for forex transactions and manages foreign exchanges rates under FEMA, 1999.
The Banking Act, 1949 gives supervisory and regulatory powers to Reservation Bank of India (RBI). Under the supervisory role, the bank monitors and regulates the activities of Commercial Banks.
The activities of Commercial Banks, including lending, borrowing and operational are monitored and regulated by Reservation Bank of India (RBI).
The Central Bank issues license to banking institutions for expanding branches and commencing operations like forex services etc. at the same time it can freeze/suspend activities of a banking institution for non compliance.
Commercial banks are also penalized for non compliance with stated rules and policy regulations.
Reservation Bank of India (RBI) also monitors the technology and operations activities of banks. For example, it issues rules for banking operations and management like adoption of security systems etc.
Reservation Bank of India (RBI) helps in development process by ensuring credit flow in industry and priority sectors. The bank lays down minimum targets for lending and deposits by the commercial banks.
The promotional role of RBI include extending rural credit, industrial financing and priority sector lending. The central bank has set up a new department, Rural Planning and Credit Department to understand the needs and problems of priority sector.
The bank has also set up various institutions for financing the needs of industry, like IFCI, IDBI, ICICI, HDFC and State Financial Corporations. The bank has implemented various schemes through commercial banks and financial institutions.