2. History:
Established in 1935 in accordance with the provisions of the Reserve Bank of India Act,
1934
Initially it was located in Kolkata.
Permanently moved to Mumbai in 1937. Today the RBI has 27 regional offices ,mostly in
state capitals.
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3. Continued…
Initially it was privately owned.
Since 1949, the RBI is fully owned by the Government of India.
Its first Governor was “Sir Osborne A. Smith.”
The first Indian Governor was “Sir Chintaman D. Deshmukh”.
Present Governor- Urjit Patel
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4. 7 Important Roles of RBI:
1. Monopoly of Note Issue
2. Banker’s Bank
3. Banker to the Government
4. Controller of Credit
5. Exchange Management and Control
6. Miscellaneous Functions
7. Promotional and Developmental Functions
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5. 1. Monopoly of Note Issue
Sole currency authority of the country
It issues notes of every denomination, except one-rupee note and coins and small coins,
through the Issue Department of the Bank.
One-rupee notes and coins and small coins are issued by the Government of India.
Control circulation of fake currency
It brings uniformly to note issue and keeps the public faith in the paper currency alive.
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6. Two Different Systems adopted by RBI:
Prior 1956
(1935-1956)
After 1956
(1956- Now)
Proportional Reserve System Minimum Reserve System
Under this system, the assets of the issue
dept. were to consists of not less than 2/5 the
of gold
Or
Sterling provided the gold was of minimum
Rs.40 crores
Remaining 3/5 the of the assets might be
rupee coins.
Under this system, RBI maintains gold and
foreign exchange reserves of Rs.200 crores.
Out of which-
₹115 cr. (worth of gold)
₹85 cr.(Foreign Security)
₹ 200 cr.(Min. Reserve)
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7. 2. Banker’s Bank
The role of RBI as a banker to other banks is as follows:
Holds some of the cash reserves of banks
Lends funds for short period
Provides centralized clearing and quick remittance facilities.
Commercial banks deposit a stipulated ratio of their total net liabilities. This ratio is
known as Cash Reserve Ratio (CRR)
However, banks can use these deposits to meet their temporary requirements for
interbank clearing as the maintenance of CRR.
Rediscounting of Bills
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8. 3. Banker to the Government
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.
The RBI:
(i) Accepts and pays money on behalf of the Government.
(ii) It carries out exchange remittance and other banking operation
(iii) Acts as agent of the Govt.
(iv) Acts as the adviser.
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9. 4. Controller of Credit
In a planned economy, the central bank plays an important role in controlling the paper
currency system and inflationary tendency.
RBI needs to meet the credit requirements of the rest of the banking system.
RBI needs to ensure promotion of max. output, and maintain price stability and a high
rate of economic growth.
To perform these functions effectively, RBI uses several control instruments such as-
(i) OMO
(ii) Lending policies towards banks
(iii) Control over interest rate structure
(iv) Statutory liquidity ratio of banks
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10. 5. Exchange Management And Control
RBI manages exchange control, and represents India as a member of the IMF
Exchange control was imposed on both receipts and payments of foreign exchange.
According to foreign exchange regulations, all foreign exchange receipts, whether on
account of export earnings, investment earnings, or capital receipts, whether of private
or govt. account, must be sold to RBI either directly or through authorized dealers.
Most commercial banks are authorized dealers of RBI.
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11. 6. Miscellaneous Function
RBI maintains and provides all essential banking and other economic data, formulating
and critically evaluating the economic policies in India.
In order to perform this function, RBI collects, collates and publishes data regularly.
Users can avail this data in the weekly statements, the RBI monthly bulletin, annual
report on currency and finance, and other periodic publications
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12. 7. Promotional And Developmental
Function
RBI attempts to mobilise savings for productive purposes. This is done in various ways.
For instance, RBI has helped a lot in building the huge financial infrastructure that we
see now.
This consists of such institutions as-
Institutions Purposes
Deposit Insurance Corporation To safeguard the interest of depositors
against bank failure
Agriculture Refinance and Development
Corporation
To meet the needs of agriculturists
IFCI,SFCs,IDBI,UTI To meet the long and medium term needs
of industry
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