3. A central bank is an apex institution, which
operate, control, directs and regulates the
monetary and banking structure of a country.
A central bank is so called because it
occupies a central or highest position in
monetary and banking structure of the
country.
In India RESERVE BANK OF INDIA is the central
bank of the country.
4. Lender of the last resort is the essential
function of central Bank.
(Hawtrey)
Primary function of central banking is a
banking system in which a central bank has
either a complete or a residuary monopoly in
note issue.
(Veera Smith)
5. RBI commenced its operations on 1 April
1935 during the British Rule in accordance
with the provisions of the Reserve Bank of
India Act, 1934
Reserve Bank of India was set up based on
the recommendation of Hilton Young
commission of 1926.
The RBI was nationalised on 1 January 1949.
6. The RBI is entrusted with the 21-member
Central Board of Directors: the Governor, 4
Deputy Governors, 2 Finance
Ministry representatives, 10 government-
nominated directors to represent important
elements of India's economy, and 4 directors
to represent local boards headquartered at
Mumbai, Kolkata, Chennai and New Delhi.
7. First governor of RBI was Osborne smith.
First Indian governor was CD Deshmukh.
Present RBI governor is Urjit R Patel.
The financial year of RBI is from 1st July to 30
June.
Original Headquarters of RBI in KOLKATA but
in 1937 it was sifted to Shahid Bhagat Singh
Marg, Mumbai.
8. There are two types of functions of central
bank-
1. Monetary function
2. Non-monetary function
9. 1. Bank of issue or currency function
RBI in our country has been given sole right of
issue of currency notes except one rupees note.
This function gets such importance that central
bank has come to be known as bank of issue.
Central bank keeps three main consideration
regarding issue of notes- (1) Uniformity
(2) Elasticity
(3) Safety
RBI tries to keep money growth within a target
range and keeps inflationary pressure at a low
level.
10. It helps the Goverment with short-term
loans and advance in times of difficulty .
GOI borrows money from RBI to finance its
budget defeceit.
As government agent, the central bank
conduct sell and purchase of government
securities also manage national debt and
foreign debt.
11. All commercial bank keep part of their cash
balance as deposit with central bank.
The central bank act as the custodian of
these reserve. It is because of this function
that a CB is called a bank of bankers.
12. The central bank lends to the commercial
bank in times of emergencies.
The central bank assume responsibility of
meeting directly or indirectly all the
reasonable demand for funds by commercial
bank in time of difficulty or crisis.
13. Central bank can control inflationary and
deflationary situation in the economics
through various control measures. Credit
control measures are also as instrument of
monetary policy.
There are two methods of credit control
measure-
(1) Quantitative credit control
(2) Qualitative credit control
14. Quantitative control measure- are the measures
which are suppose to control the total volume of
bank credit. The main quantitative measures
are-
(1) bank rate policy
(2) open market operation
(3) variable reserve requirements
15. Qualitative credit control measure, which
control certain types of credit and allocate
credit between alternative uses are called
qualitative measures. The major qualitative
control are-
(1) change in marginal requirement
(2) moral suasion
(3) control of consumer’s credit
(4) selective credit control
16. 1. Supervision of bank-
The central bank supervises and monitors
the working of commercial bank. The RBI is
given power to supervise and monitor the
working of commercial bank under the
banking regulation act 1949.
2. Promotional and development function-
It performs promotion and development
function also such as RBI set up NABARD to
promote agriculture and rural development.
It has also set up EXIM bank of India to
promote foreign trade.
17. 3. Data collection and publication-
The central bank collect data on various
economic matters such as foreign trade, foreign
investment in India, inflation and so on.
4. Clearance-
Central bank also gives clearance to various
proposal or projects involving financial
consideration. for instance it clears proposal
from Indian firms to invest in foreign country.
