Functions of RBI, Objective and Key Feature

Functions of RBI: The Reserve Bank of India was established in 1935 and since then regulated the Indian rupee in the country. The Reserve Bank is also responsible for the management of other commercial banks through its various policies and guidelines.

Objectives of RBI

Main Objectives: The main objectives of the Reserve Bank of India (RBI) are:

To remain independent from political influence: To maintain financial stability and promote economic growth, RBI should be free from any political pressure and refrain from corrupt activities

Promotion of Economic Growth: Along with maintaining price stability, RBI should also design policies that promote economic growth of the country.

Functions of RBI

1)Monetary Management/Office

2) Control and Regulation of Banking and Other Financial Institutions

3) Regulation of Foreign Exchange Market, Government Securities Market and Money Market

Government Securities Market: The RBI regulates the securities issued by the Central and State Governments. The RBI is empowered by the RBI Act, 1934 to regulate this.

Money Market : RBI also regulates short-term and highly liquid debt securities and RBI derives its powers in this regard from the RBI Act, 1934.

4) Management of Foreign Exchange Reserves

• Foreign Reserves (FRA)
• Special Settlement Rights (SDR)
• Gold

5) Bankers to Central and State Governments

6) Advisor to Government

7) Central and State Debt Manager

8) Banker to Banks

9) Lenders of Last Resort

10) RBI - Issuer of Currency

11) Role in Development

Functions of RBI Key Features

1. The prior approval of RBI is essential for appointment, reappointment and removal of Chairman, CEO and Managing Director of commercial banks (except public sector banks).
2. When the situation arises, RBI can replace the Board of Commercial Banks with the permission of the Central Government.
3. Public Sector Banks (PSBs) are dually regulated by the central government and the RBI, so RBI's power over public sector banks is limited as it cannot recall directors and management or the board of banks or force mergers.
4. As per the RBI regulation, banks were required to maintain certain reserves in the form of CRR and SLR.
5. RBI regulates interest rates on NRI deposits, export credit (loans) and some other categories. However, the interest on most deposits and loans is exempt, so banks are responsible for setting such interest rates.
6. RBI established Deposit and Credit Guarantee Corporation (DICGC) to protect the interest of small depositors in case of bankruptcy or bankruptcy (100% subsidy). It provides cover to all eligible bank depositors up to Rs 5 lakh per depositor and bank. It takes insurance premiums from banks to provide insurance coverage. DICGC covers all commercial banks including branches of foreign banks and UCBs/StCBs/DCCBs. But it is important to note that this does not include foreign government deposits, central and state government deposits or interbank deposits.
7. RBI has allowed banks to engage in some non-traditional banking activities like venture capital, insurance, mutual fund etc.
8. Cooperative Banks - Cooperative banks are subject to dual regulation by RBI and Govt. Both the agencies have different areas of work as
9. RBI handles banking related functions and central government or state government handles management related functions.
10. Financial institutions, NBFCs, Primary Dealers and Credit Reference Companies (CIC) - The four pan-India financial institutions, NABARD, NHB, EXIM Bank and SIDBI, are fully regulated and supervised by the RBI.
11. RBI also regulates and supervises NBFCs, primary dealers and CICs.
12. The RBI has powers to regulate banks and NBFCs, but until July 2019, the RBI had the power to take over the board of directors of banks (in case of mismanagement or negligence), but not the board of NBFCs. In July 2019, the RBI Act, 1934 was amended to empower the RBI to replace an NBFC even in case of mismanagement or insolvency. RBI is now empowered to appoint executive officers also in public interest.

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