It also manages the country’s main payment systems and works to promote its economic development. Deposit Insurance and Credit Guarantee Corporation was established by RBI as one of its specialized division for the purpose of providing insurance of deposits and guaranteeing of credit facilities to all Indian banks. The RBI was established on April 1, 1935 under the Reserve Bank of India Act, 1934 on the recommendation of the Hilton-Yong-Commission or commonly referred to as Royal Commission on Indian currency and finance. The main motive behind setting up RBI was to separate the currency control from the government and provide other banking facilities. The Reserve Bank of India was nationalized with effect from 1st January, 1949 on the basis of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948. The working of RBI is regulated by the RBI governor appointed by the central government of India and the Governor acts as the main decision-maker in RBI.

  1. All the functions of the Reserve Bank of India are given below.
  2. The main goal of the RBI’s monetary policy is price stability.
  3. It manages and operates the Financial messaging platform (SFMS) that comprises Real-Time Gross Settlement and National Electronic Funds Transfer.
  4. The RBI is under the ownership of the Government of India, and it is solely responsible for controlling, maintaining, and issuing the currency, banking decisions, and other financial-related decisions in the country.
  5. It is the duty of the RBI to control the credit through the CRR, repo rate, and open market operations.

To achieve this, the RBI uses all types of credit control instru­ments, quantitative, qualitative and selective. The most extensively used credit instrument of the RBI is the bank rate. The RBI also relies greatly on the selective methods of credit control. This function is so important that it requires special treatment. According to the RBI Act 1934, it performs 3 kinds of functions as that of some other central bank.

This is only possible because the RBI ensures that the payment and settlement systems are safe, efficient, and accessible throughout the country. Moreover, they can consult with the Government of India to issue decisions favoring the public interest. Candidates preparing for the upcoming UPSC exam can download the Reserve Bank of India UPSC notes by downloading the PDF with the link provided here.

Similarly, when liquidity is tight, RBI will buy government securities and thereby inject money supply into the economy. The board is constituted by co-opting four directors from the Central Board as members for a term of two years and is chaired by the governor. The deputy governors of the reserve bank are ex-officio members.

Shop for financial products just like you buy everything else now – online. Trade Brains is a Stock market analytics, financial & business news service provider and education platform in India with a mission to simplify stock market investing and trading. The RBI designates specific responsibilities to various other institutions it sets up in order to ensure that the system is regulated and supervised. The RBI also sets up the legal framework that governs these systems. The RBI has set up the PSS( Payment and Settlement Systems Act, 2007). Initially, the RBI was set up as a stakeholder bank, but after its nationalisation in 1949, RBI became fully owned by the Government of India.

The RBI also manages all foreign exchange under the Foreign Exchange Management Act of 1999. This act allows the RBI to facilitate external trade and payments to promote the development and health of the foreign exchange market in India. The bank also destroys banknotes when they are not fit for circulation. All the money issued by the central bank is its monetary liability, i.e., the central bank is obliged to back the currency with assets of equal value, to enhance public confidence in paper currency. The objectives are to issue banknotes and give the public adequate supply of the same, to maintain the currency and credit system of the country to utilise it in its best advantage, and to maintain the reserves. RBI, or the Reserve Bank of India, is the statutory body that acts as the controlling body of national currency.

Keeping a Track of Foreign Exchange Reserve

So now, the RBI is responsible to oversee the foreign exchange market in India. RBI supervises and regulates the Foreign Exchange Market through the provision of the FEMA Act 1999. Located in Mumbai, the RBI serves the financial market in many ways.


As per the MRS, the Reserve Bank of India keeps a reserve asset of Rs 200 crore out of which INR 120 crore would be in form of Gold and the rest in the form of foreign currency. Also, the addition of any new denomination or discontinuation of any existing denomination is being done by RBI. For example, during demonetization in November 2016, RBI discontinued old 500 and 1000 rupee notes and added new 2000 and 500 rupee notes. RBI, also known as the Reserve Bank of India, is the statutory body that acts as the country’s central bank that handles the country’s economic stability and growth. It manages all the significant monetary policies of the government. One of the most important functions of RBI is to be the banker’s bank.

The Board of Financial Supervision (BFS), formed in November 1994, serves as a CCBD committee to control the financial institutions. It has four members, appointed for two years, and takes measures to strength the role of statutory auditors in the financial sector, external monitoring, and internal controlling systems. The Tarapore committee was set up by the Reserve Bank of India under the chairmanship of former RBI deputy governor S. S. Tarapore to “lay the road map” to capital account convertibility. The five-member committee recommended a three-year time frame for complete convertibility by 1999–2000. One of the essential central banking functions performed by the Bank is that of maintaining the external value of rupee.

The compiled notes contain all the details about the functions of RBI, its history, objectives, and role in the Indian economy. After the partition of the country into two separate countries, the Reserve Bank acted as Pakistan’s central bank (upto June 1948). The Shareholder’s Bank was nationalized as the Reserve Bank of India in 1949.

Indian Financial Technology and Allied Services

RBI increases or decreases the repo rate to control inflation and regulate the cash flow in the market. Two of the four deputy governors are traditionally from RBI ranks and are selected from the bank’s executive directors. One is nominated from among the chairpersons of public sector banks and the other is an economist. An Indian Administrative Service officer can also be appointed as deputy governor of RBI and later as the governor of RBI as with the case of Y. The financial markets play a very important role in the financial system and very few entities in the country have the power and resources to ensure their stability, one of them being the RBI. The FMI includes PAyment Systems, Central Securities Depository, Securities Settlement Systems, Central counterparties, trade repositories(an entity that maintains electronic records of transaction data), etc.

In this role, the RBI focuses on the development and functioning of safe, secure and efficient payment and settlement mechanisms. Two payment systems National Electronic Fund Transfer (NEFT) and Real-Time Gross Settlement (RTGS) allow individuals, companies and firms to transfer funds from one bank to another. These facilities can only be used for transferring money within the country. BFS through the Audit Sub-Committee also aims at upgrading the quality of the statutory audit and internal audit functions in banks and financial institutions. The audit sub-committee includes deputy governor as the chairman and two directors of the Central Board as members.

(ii) It carries out exchange remittances and other banking operations. The RBI acts as the banker to the government of India and State Governments (except Jammu and Kashmir). As such it transacts all banking business of these Govern­ments. Prior to 1956, the principle of note issue of the RBI was based on proportional reserve system. This system was replaced by the minimum reserve sys­tem in 1956 under which the RBI was required to hold at least Rs. 115 crores worth of gold as back­ing against the currency issued.

What are the main functions of Reserve Bank of India?

For example, when the RBI reduces repo rate, it asks banks to reduce their base rate as well. Another example of this measure is to ask banks to reduce their non-performing assets. BRBNM was established by RBI on 3 February 1995 for the purpose to enable RBI to bridge the gap between maintain, demand and supply of Indian rupee notes in the country. The RBI has evolved into one of the most important and dependable entities in the country over the last 85 years.

The main objective of this function is to ensure that the banking system functions well, that it protects depositors’ money and also to ensure that banks provide cost-effective services to their customers. To further this cause, the RBI created the Banking Ombudsman to address complaints of bank features of rbi customers. The RBI also lays down the rules for capital adequacy of banks. Banks, of course, approach the RBI for help during emergencies. The RBI also plays an important role when in stabilizing the value of the Indian currency by maintaining gold bullions and foreign currency reserves.

Nagpur Reserve Bank was established in 1956, while the Ahmedabad branch was established in 1950.