Introduction


In this article you will know about " Central Bank (The Reserve Bank of India) :Its Functions And Importance ". As the central Bank of the Country, The Reserve Bank of India performs the functions. Central Bank is an 'Apex ' body that controls, operates, regulates and directs the entire banking and monetary structure of the country. All the financially developed countries have their own central bank. India's central Bank is the Reserve Bank of India (RBI). RBI was established in April 1 1935 under Reserve Bank of India Act passed in 1934.



Functions of central Bank of India

1. Currency Authority Or Bank of  Issue 

Central Bank has the sole authority for issue of currency in the country. In India, Reserve Bank of India has the sole right of issuing paper currency notes (except one rupee notes and coins, which are issued by ministry of finance). The one rupee note beras the signature of finance secretary, while other currency notes bear the signature of Governor RBI.

2. Banker To The Government 

The Reserve Bank of India acts as a banker, agent and a financial advisor to the Central Government and all the State Government. As a banker, it carries out all banking business of the government. 
  • It maintains a current account for keeping their cash balances. 
  • It accepts receipts and makes payments for the government and carries out exchange, remittance and other banking operations. 
  • It also gives loans and advances to the government for temporary periods. The government borrows money by selling treasury bills to the central Bank. 
As an agent, the central Bank also has the responsibility of managing the public debt.
As a financial advisor, the central Bank advices the government from time to time on economic, financial and monetary matters. 

3. Banker's Bank And Supervisor

There are a number of commercial banks in a country. There should be some agency to regulate and supervise their proper functioning. Being Apex Bank, the central bank (RBI) acts as the banker to other banks. As the banker to banks, the central bank functions in three capacities:

  1. Custodian of Cash Reserves:- commercial banks are required to keep a certain proportion of their deposits ( known as Cash Reserve Ratio or CRF) with the central Bank. In this way, central Bank acts as a custodian of cash reserves of commercial banks. 
  2. Lender of the last resort:- when commercial banks fail to meet their financial requirements from other sources, in case of financial emergency, they approach the central Bank to give loans and advances as lenders of the last resort. 
  3. Clearing House:- As a central Bank holds the cash reserves of all the commercial banks, it becomes easier and more convenient for it to act as their clearing House. 

4. Controller Of Money Supply And Credit 

The Reserve Bank of India is empowered to regulate the money supply in the economy through its 'Monetary policy'. It is the policy adopted by the central Bank of na economy in the direction of credit control or money supply. As, RBI has the sole monopoly in currency issue, it can control credit and money supply. For this RBI use following instrument of monetary policy_
Repo Rate 
Bank Rate 
Reverse Repo Rate 
Open Market Instruments
Legal Reserve Requirements
Margin Requirements


Importance Of Central Bank (RBI) 

  • It leads to uniformity in note circulation. 
  • It ensure public faith in currency system. 
  • It control major economic issues like inflation, deflation by monetary policy. 
  • It helps and supervise government in bad situations. 
  • It helps in stabilization of internal and external value of currency. 
  • It facilities the working of commercial banks.