Role and Functions of Reserve Bank of India and commercial banks

<<–2/”>a >h3>Role of RBI

	Pre-reform	Post-reform
Developmental Role: the developmental role has increased in view of the changing structure of the economy with a focus on SMEs and Financial Inclusion	Priority Sector Lending: Introduced from 1974 with Public Sector Banks. Extended to all Commercial Banks by 1992	In the revised guidelines for PSL the thrust is on ensuring adequate flow of bank credit to those sectors that impact large segments of the Population and weaker sections, and to the sectors which are EMPLOYMENT intensive such as agriculture and small enterprises
	Lead Bank Scheme	Special Agricultural credit Plan introduced.
		Kisan Credit Card scheme (1998-99)
		Focus on credit flow to micro, small and medium enterprises development
		Financial Inclusion
Monetary Policy: the role of RBI has changed from regulating credit and Money flow directly to using market mechanisms for achieving policy targets. MP framework has changed to promote financial deregulations and market development. Role as a facilitator rather than as principal actor.	M3 as an intermediary target	Multiple Indicator Approach
	Regulation of Foreign Exchange	Management of foreign exchange
	Direct credit control	Open Market Operations, MSS, LAF
	Rupee convertability highly managed	Full current ac convertability and some Capital Account convertability
Banker to the government	Monetary policy was linked to the Fiscal Policy due to automatic monetisation of the deficit	Delinking of monetary policy from the fiscal policy. From 2006, under FRBM, RBI ceased to participate in the Primary Market auctions of the central government’s securities.
As regulator of financial sector: As regulator of the financial sector, RBI has faced the challenge of regulating the increasing financial sector in India. Credit flows have increased. RBI had to make sure that financial institutions are regulated in a way to protect the consumers while not impeding economic Growth.	Reduction in SLR
Custodian of FOREX reserves		Forex reserves have increased drastically. Need to manage it adequately and avoid inflationary impact
Inflation	Direct instruments were used	Multiple indicators
Financial Stability	Closed economy	Increased FDI and FII has made financial stability one of the policy objectives.
Money Market		Narsimhan Committee (1998) recommended reforms in the money market

Indian Money Market and Banking system is regulated by Reserve Bank of India.The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.

Main Functions of RBI are as follows:-

Monetary Authority:

Formulates, implements and monitors the monetary policy.
Objective: maintaining price stability while keeping in mind the objective of growth.

Regulator and supervisor of the financial system:

Prescribes broad parameters of banking operations within which the country’s banking and financial system functions.
Objective: maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking Services to the public.

Manager of Foreign Exchange

Manages the Foreign Exchange Management Act, 1999.
Objective: to facilitate external trade and payment and promote orderly development and maintenance of Foreign exchange market in India.

Issuer of currency:

Issues and exchanges or destroys currency and coins not fit for circulation.
Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.

Developmental role

Performs a wide range of promotional functions to support national objectives.

Related Functions

Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.
Banker to banks: maintains banking accounts of all scheduled banks.

A Commercial bank is a type of financial institution that provides services such as accepting deposits, making business loans, and offering basic Investment products

There is acute shortage of capital. People lack initiative and enterprise. Means of transport are undeveloped. Industry is depressed. The commercial banks help in overcoming these obstacles and promoting Economic Development. The role of a commercial bank in a developing country is discussed as under.

Mobilising Saving for Capital Formation:

The commercial banks help in mobilising Savings through Network of branch banking. People in developing countries have low incomes but the banks induce them to save by introducing variety of deposit schemes to suit the needs of individual depositors. They also mobilise idle savings of the few rich. By mobilising savings, the banks channelize them into productive investments. Thus they help in the capital formation of a developing country.

Financing Industry:

The commercial banks finance the Industrial Sector in a number of ways. They provide short-term, medium-term and long-term loans to industry.

Financing Trade:

The commercial banks help in financing both internal and external trade. The banks provide loans to retailers and wholesalers to stock goods in which they deal. They also help in the movement of goods from one place to another by providing all types of facilities such as discounting and accepting bills of exchange, providing overdraft facilities, issuing drafts, etc. Moreover, they finance both exports and imports of developing countries by providing foreign exchange facilities to importers and exporters of goods.

Financing Agriculture:

The commercial banks help the large agricultural sector in developing countries in a number of ways. They provide loans to traders in agricultural commodities. They open a network of branches in rural areas to provide agricultural credit. They provide finance directly to agriculturists for the Marketing of their produce, for the modernisation and mechanisation of their farms, for providing Irrigation facilities, for developing land, etc.

They also provide financial assistance for Animal Husbandry, Dairy farming, sheep breeding, Poultry farming, pisciculture and Horticulture-2/”>Horticulture. The small and marginal farmers and landless agricultural workers, artisans and petty shopkeepers in rural areas are provided financial assistance through the Regional Rural Banks in India. These regional rural banks operate under a commercial bank. Thus the commercial banks meet the credit requirements of all types of rural people. In India agricultural loans are kept in priority sector landing.

Financing Consumer Activities:

People in underdeveloped countries being poor and having low incomes do not possess sufficient financial Resources to buy durable consumer goods. The commercial banks advance loans to consumers for the purchase of such items as houses, scooters, fans, refrigerators, etc. In this way, they also help in raising the standard of living of the people in developing countries by providing loans for consumptive activities and also increase the demand in the economy.

Financing Employment Generating Activities:

The commercial banks finance employment generating activities in developing countries. They provide loans for the Education of young person’s studying in engineering, medical and other vocational institutes of higher Learning. They advance loans to young entrepreneurs, medical and engineering graduates, and other technically trained persons in establishing their own business. Such loan facilities are being provided by a number of commercial banks in India. Thus the banks not only help inhuman capital formation but also in increasing entrepreneurial activities in developing countries.

Help in Monetary Policy:

The commercial banks help the economic development of a country by faithfully following the monetary policy of the central bank. In fact, the central bank depends upon the commercial banks for the success of its policy of monetary management in keeping with requirements of a developing economy.

The Reserve Bank of India (RBI) is the central bank of India. It was established on April 1, 1935, in accordance with the Reserve Bank of India Act, 1934. The RBI is headquartered in Mumbai, Maharashtra.

The RBI is the banker to the government of India and the banker’s bank. It is also the issuer of the Indian rupee. The RBI is responsible for formulating and implementing monetary policy, regulating and supervising banks, managing the country’s foreign exchange reserves, and promoting financial stability.

The RBI has a number of functions, including:

Monetary Policy: The RBI is responsible for formulating and implementing monetary policy. Monetary policy is the use of interest rates and other tools to control the Money Supply and inflation. The RBI’s monetary policy objectives are to maintain price stability, promote economic growth, and ensure financial stability.
Bank Regulation and Supervision: The RBI is responsible for regulating and supervising banks. This includes ensuring that banks are Sound and solvent, and that they comply with the RBI’s regulations.
Currency Management: The RBI is responsible for managing the country’s currency. This includes issuing new currency, destroying old currency, and managing the country’s foreign exchange reserves.
Payment and Settlement Systems: The RBI is responsible for operating and regulating the country’s payment and settlement systems. This includes the National Electronic Fund Transfer (NEFT) system, the Real Time Gross Settlement (RTGS) system, and the Cheque Truncation System (CTS).
Foreign Exchange Management: The RBI is responsible for managing the country’s foreign exchange reserves. This includes buying and selling foreign currencies, and regulating the flow of foreign exchange into and out of the country.
Financial Stability: The RBI is responsible for promoting financial stability. This includes identifying and mitigating systemic risks, and ensuring that the financial system is resilient to shocks.
Promoting Financial Inclusion: The RBI is responsible for promoting financial inclusion. This includes ensuring that all segments of the population have access to financial services.
Other Functions: The RBI also performs a number of other functions, including issuing banknotes, managing the country’s gold reserves, and acting as the government’s banker.

Commercial banks are financial institutions that accept deposits from the public and use those deposits to make loans. Commercial banks play a vital role in the economy by providing credit to businesses and individuals, and by facilitating the transfer of money.

Commercial banks have a number of functions, including:

Accepting Deposits: Commercial banks accept deposits from the public in the form of checking accounts, savings accounts, and time deposits. These deposits are then used to make loans.
Providing Loans: Commercial banks make loans to businesses and individuals. These loans can be used for a variety of purposes, such as purchasing a home, starting a business, or financing a car.
Investing in Securities: Commercial banks invest in a variety of securities, such as Bonds/”>Government Bonds, corporate bonds, and stocks. These investments provide the banks with a Source Of Income and help to reduce risk.
Providing Other Financial Services: Commercial banks provide a variety of other financial services, such as checking and savings accounts, credit cards, and investment advice. These services help to generate revenue for the banks and make them more competitive.
Risk Management: Commercial banks must manage a variety of risks, such as credit risk, market risk, and operational risk. Credit risk is the risk that a borrower will not repay a loan. Market risk is the risk that the value of an asset will decline. Operational risk is the risk of loss due to errors, fraud, or other problems.
Compliance: Commercial banks must comply with a variety of laws and regulations, such as the Bank Secrecy Act, the Patriot Act, and the Dodd-Frank Wall Street Reform and Consumer protection Act. These laws and regulations are designed to protect consumers and the financial system.
Corporate Governance: Commercial banks must have strong corporate governance practices in place. This includes having a board of directors that is independent and qualified, and having a Code Of Conduct for employees. Strong corporate governance practices help to protect the interests of shareholders and stakeholders.

Commercial banks are important institutions that play a vital role in the economy. They provide credit to businesses and individuals, and they facilitate the transfer of money. Commercial banks must manage a variety of risks, and they must comply with a variety of laws and regulations. Commercial banks must also have strong corporate governance practices in place.

The RBI is responsible for formulating and implementing monetary policy, regulating the financial system, and issuing currency. It also acts as the banker to the government and the banker’s bank.

The RBI is governed by a central board of directors, which is appointed by the government of India. The board is headed by the governor of the RBI, who is appointed by the president of India.

The RBI has a number of functions, including:

Formulating and implementing monetary policy
Regulating the financial system
Issuing currency
Acting as the banker to the government and the banker’s bank
Supervising and regulating banks and other financial institutions
Promoting the development of the financial system
Conducting research on monetary and financial matters
Providing financial services to the government and other public sector entities

Commercial banks are financial institutions that accept deposits from the public and use those deposits to make loans. Commercial banks play a vital role in the economy by providing a safe place to store money and by making loans to businesses and individuals.

Commercial banks are regulated by the RBI. The RBI sets rules and regulations that commercial banks must follow. The RBI also has the power to inspect commercial banks and to take action against banks that do not comply with the rules.

Commercial banks offer a variety of services to their customers, including:

Checking accounts
Savings accounts
Certificate of Deposit (CD) accounts
Loans
Credit cards
Investment services
Online banking
Mobile banking

Commercial banks are important to the economy because they provide a safe place to store money and they make loans to businesses and individuals. Loans from commercial banks help businesses to grow and to create jobs. Loans from commercial banks also help individuals to buy homes, cars, and other goods and services.

Here are some frequently asked questions about the Reserve Bank of India and commercial banks:

What is the Reserve Bank of India?
The Reserve Bank of India (RBI) is the central bank of India. It was established on April 1, 1935, in accordance with the Reserve Bank of India Act, 1934. The RBI is headquartered in Mumbai, Maharashtra.
What are the functions of the Reserve Bank of India?
The RBI has a number of functions, including:
Formulating and implementing monetary policy
Regulating the financial system
Issuing currency
Acting as the banker to the government and the banker’s bank
Supervising and regulating banks and other financial institutions
Promoting the development of the financial system
Conducting research on monetary and financial matters
Providing financial services to the government and other public sector entities
What are the functions of commercial banks?
Commercial banks are financial institutions that accept deposits from the public and use those deposits to make loans. Commercial banks play a vital role in the economy by providing a safe place to store money and by making loans to businesses and individuals.

Commercial banks offer a variety of services to their customers, including:
* Checking accounts
* Savings accounts
* Certificate of deposit (CD) accounts
* Loans
* Credit cards
* Investment services
* Online banking
* Mobile banking

Why are commercial banks important to the economy?
Commercial banks are important to the economy because they provide a safe place to store money and they make loans to businesses and individuals. Loans from commercial banks help businesses to grow and to create jobs. Loans from commercial banks also help individuals to buy homes, cars, and other goods and services.

The Reserve Bank of India (RBI) is the central bank of India. It was established on April 1, 1935, in accordance with the Reserve Bank of India Act, 1934. The RBI is the banker to the government of India and the banker’s bank. It is also the issuer of the Indian rupee.
The RBI has the following functions:
To regulate the issue of bank notes and keep the value of the rupee stable.
To promote the growth of the economy.
To maintain financial stability.
To act as the lender of last resort to banks.
To regulate the financial system.
To promote the development of the financial sector.
Commercial banks are banks that offer a range of financial services to individuals and businesses. These services include checking and savings accounts, loans, mortgages, and investment products.
Commercial banks play an important role in the economy by providing a safe place for people to store their money and by lending money to businesses and individuals. They also help to facilitate the flow of money in the economy by providing payment services such as checks and credit cards.
The following are some of the benefits of using commercial banks:
Safety: Commercial banks are regulated by the government and are required to hold a certain amount of capital in reserve. This helps to protect your money in the event that the bank fails.
Convenience: Commercial banks offer a variety of convenient services, such as online banking, mobile banking, and ATMs.
Access to credit: Commercial banks can provide you with loans, mortgages, and other forms of credit.
Investment products: Commercial banks offer a variety of investment products, such as savings accounts, CDs, and Mutual Funds.
The following are some of the risks of using commercial banks:
Inflation: The value of your money can decrease over time due to inflation.
Interest rates: The interest rates on loans and mortgages can change, which can affect your monthly payments.
Bank failures: Banks can fail, which can result in the loss of your money.
Fraud: You could be a victim of fraud, such as identity theft or credit card fraud.
To protect yourself from the risks of using commercial banks, you should:
Diversify your investments: Don’t put all of your money in one place. Invest in a variety of assets, such as stocks, bonds, and real estate.
Monitor your accounts: Check your bank statements regularly and make sure that all of the transactions are correct.
Be aware of fraud: Be familiar with the different types of fraud and how to protect yourself from them.
Keep your information safe: Don’t share your personal information, such as your Social Security number or bank account number, with anyone you don’t know and trust.
The following are some of the ways to choose a commercial bank:
Consider your needs: What type of services do you need? What are your priorities?
Compare banks: Compare the fees, interest rates, and other features offered by different banks.
Read reviews: Read online reviews of banks to get an idea of what other customers have experienced.
Visit the bank: Visit the bank in person to get a feel for the Atmosphere and the staff.
Ask questions: Don’t be afraid to ask questions about the bank’s products and services.
The following are some of the things to look for when choosing a commercial bank:
Safety: Make sure that the bank is FDIC insured. This means that your money is insured up to $250,000 per depositor, per institution.
Convenience: Choose a bank that has branches and ATMs that are convenient for you to use.
Customer service: Choose a bank with good customer service. You should be able to get help easily if you have any problems.
Fees: Compare the fees charged by different banks. Some banks charge monthly maintenance fees, while others charge fees for things like overdraft protection and ATM withdrawals.
Interest rates: Compare the interest rates offered by different banks on checking and savings accounts, as well as on loans and mortgages.
The following are some of the things to avoid when choosing a commercial bank:
High fees: Avoid banks that charge high fees for things like monthly maintenance fees, overdraft protection, and ATM withdrawals.
Low interest rates: Avoid banks that offer low interest rates on checking and savings accounts, as well as on loans and mortgages.
Poor customer service: Avoid banks with poor customer service. You should be able to get help easily if you have any problems.
Unstable financial condition: Avoid banks that have a history of financial problems.