Reserve Bank of India (RBI): Functions & Role
Introduction
The Reserve Bank of India (RBI) is India's central bank, established in 1935 under the RBI Act, 1934. It was nationalized in 1949. Its headquarters is in Mumbai.
Key Functions of RBI
1. Monetary Authority
- Formulates and implements monetary policy.
- Controls money supply using tools like CRR, SLR, Repo Rate, Reverse Repo Rate.
- Aims to maintain price stability while supporting growth.
2. Regulator of Banking System
- Licenses and regulates banks under the Banking Regulation Act, 1949.
- Conducts onsite and offsite supervision of banks.
- Ensures financial stability and depositor protection.
3. Issuer of Currency
- Has the exclusive right to issue currency notes (except ₹1 notes/coins by MoF).
- Ensures adequate supply of clean currency.
- Destroys unfit currency under Clean Note Policy.
4. Banker to Government
- Acts as banker to Central & State Governments.
- Manages public debt and facilitates government transactions.
5. Custodian of Foreign Exchange
- Manages Foreign Exchange Reserves (over $600 billion as of 2024).
- Administers the Foreign Exchange Management Act (FEMA), 1999.
6. Lender of Last Resort
- Provides emergency liquidity to banks in crisis.
7. Developmental Role
- Promotes financial inclusion (e.g., PMJDY, NACH, UPI).
- Regulates NBFCs, Payment Systems, and FinTech.
Recent RBI Initiatives (Prelims Relevant)
- Digital Rupee (e₹) – RBI's Central Bank Digital Currency (CBDC).
- UPI Lite – For small-value digital payments.
- PCA Framework – Prompt Corrective Action for weak banks.
- Green Deposits – To fund eco-friendly projects.
Important Committees Related to RBI
- Narasimham Committee (1991, 1998) – Banking reforms.
- Urjit Patel Committee (2014) – Inflation targeting.
- Bimal Jalan Committee (2019) – RBI’s economic capital framework.
Conclusion
The RBI plays a pivotal role in India’s economy by ensuring monetary stability, regulating banks, and fostering growth. Understanding its functions is crucial for UPSC Prelims (Economy section).