The Role of the Reserve Bank of India

RBI, the Reserve Bank of India, is responsible for making financial policies, and it also decides the interest rate for banks. The RBI fixes the loan and deposit rates. It also frames the various acts in the area of finance for our country.

Reserve Bank of India

RBI is the central bank of India. Simply put, the role of the central bank is to monitor the economy of the country and stabilise it through the use of its various policies. The central bank is like an advisor to the government on economic issues.

Role of the RBI: What does the RBI do?

Issues your money

The Reserve Bank of India has the exclusive right to issue new banknotes and coins. As we do not use certain notes, for example, a note of two rupees is a rare sight now; it is because the RBI is not issuing old two rupees notes. Instead, we see new 20 rupee notes, which are issued by the RBI.

Look after the policies for your money

The RBI forms, implements, and oversees policies regarding money. The most powerful function of the RBI is framing policies. With the help of these policies, the RBI has the power to fix the loan interest rate in the country. It tries to manage the situation of inflation or deflation in the country. Inflation means when prices of goods rise or go up. Deflation means when the prices of goods fall or go down. In short, lower interest rates will lead to more people taking out loans, which means more money in the market, and more money will lead to more demand but less supply. This gap will create inflation. Deflation is the opposite situation of inflation.

Foreign exchange manager

Foreign exchange is foreign money. Usually through export, i.e., sale of goods and services outside India or import, which is the purchase of foreign goods by India, these two situations are the main drivers of foreign exchange. RBI is the caretaker of foreign money in India.

Supervise the financial system

The RBI regulates the general parameters of the banking operations of national banks and the financial system. This means the rules of the banks for giving out loans or the basic functions of a bank. It ensures that banks follow published guidelines. If a bank does not follow the RBI guidelines, and you, as the customer, face any problem, the RBI can mediate the matter.

Payment and settlement systems supervisor

The RBI introduced and updated a secure and efficient payment system model in the country to meet the needs of the general public. This includes the implementation of many advanced technologies, such as the latest Unified Payment Interface (UPI), through which you can use apps such as Google Pay to send or receive funds from your mobile phone.

Related functions

The RBI is the government’s bank: It performs retail banking functions for central and state governments. This includes handling financial securities issued by the government, such as treasury bills, infrastructure bonds, etc. The way we deposit or borrow money from the local banks. The government does the same lending and borrowing from the RBI.

The RBI is the bankers’ bank: It keeps bank accounts of other banks like SBI and the Union Bank. They have their bank accounts with the RBI.

Development role

RBI works towards the development of our country. This includes providing timely credit to the productive sectors of the economy, such as the agricultural sector. The RBI ensures the farmers get loans on time. RBI also is responsible for setting up financial institutions in the country. Financial institutions work towards the betterment of society. RBI tries to make sure that no section of society is neglected.