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Functions of RBI

1. Issue of Banknotes-
The Reserve Bank has the monopoly of note issue in the country. It has the sole right to issue currency notes of all denominations except one-rupee notes. One-rupee notes are issued by the Ministry of Finance of the Government of India. The Reserve Bank acts as the only source of legal tender because even the one-rupee notes are circulated through it. The Reserve Bank has a separate Issue Department, which is entrusted with the job of issuing currency notes.

2. Banker to Government-
The Reserve Bank acts as the banker, agent and adviser to Government of India:
(a) It maintains and operates government deposits,
(b) It collects and makes payments on behalf of the government,
(c) It helps the government to float new loans and manages the public debt,
(d) It sells for the Central Government treasury bills of 91 days duration,
(e) It makes ‘Ways and Means’ advances to the Central and State Governments for periods not exceeding three months.

3. Custodian of Cash Reserves of Commercial Banks-
The commercial banks hold deposits in the Reserve Bank and the latter has the custody of the cash reserves of the commercial banks.

4. Custodian of Country’s Foreign Currency Reserves-
The Reserve Bank is the custodian of India’s foreign exchange reserves. It maintains and stabilises the external value of the rupee, administers exchange controls and other restrictions imposed by the government, and manages the foreign exchange reserves.

5. Lender of Last Resort-
The commercial banks approach the Reserve Bank in times of emergency to tide over financial difficulties, and the Reserve bank comes to their rescue though it might charge a higher rate of interest.

6. Central Clearance and Accounts Settlement-
Prescribes broad parameters of banking operations within which the country’s banking and financial system functions.

7. Controller of Credit-
The RBI has been assigned the role of controlling and supervising the bank system in India. The RBI is responsible for controlling the overall operations of all banks in India. These banks may be:
1.) Public sector banks
2.)Private sector banks
3.)Foreign banks
4.)Co-operative banks
5.)Regional rural banks