in this PPT function of central bank or RBI are explained. how central bank perform different functions are explained. this is useful for the students of 12 CBSE, ICSE and other state boards.

1. Functions of RBI
PREPARED BY
HEMANT KUMAR JAIN
PGT ECONOMICS
KV AMBIKAPUR

3. Introduction
• Reserve Bank of India was established on April 1935 under the RBI act
1934.
• On 1st January 1949 it was nationalised and started working as Central
Bank of India.
• The headquarter of RBI is situated in Mumbai.
• RBI has 26 departments and 26 regional offices.
• The accounting year of RBI is 1st July to 30th June.

4. Importance of RBI
RBI plays three important roles in economy:-
1. RBI works as Central Bank of India.
2. RBI is the Apex body and supervisor of Banking structure and
monetary system.
3. RBI plays important role in in industrial and agriculture
development in India.

5. Functions
of
Central Bank
Bank
of
issuing NotesControl
on
Credit
Creation
Clearing
House
Function
Custodian of
Foreign
Exchange
Reserves
Lender
of
last Resort
Bankers’ Bank
and
Supervisory
Role
Banker
to the
Government

6. Bank of Issuing Notes
• The Reserve Bank of India has the sole
right to issue currency notes except
one rupee notes and coins.
• Currency notes issued by the Reserve
Bank are declared unlimited legal
tender throughout the country.
• India follows the minimum reserve
system for issuing currency.
• Under it RBI has a reserve of 200 crore
rupees fund in which 115 crore rupees
are in term of gold and 85 crore rupees
in term of foreign securities.
Importance of this
function:-
• Uniformity in Monetary
System(issuing notes).
• Easy control and
monitoring.
• Building faith of people in
monetary system of
country.

7. Banker to the Government
• RBI works as banker, agent, and
advisor to the government of India
and state governments.
• RBI provides short term loan to
government to fulfil the temporary
gap between public expenditure
and public receipts.
• RBI maintains accounts of
Government of India and state
governments.
• RBI collects receipts and makes
payments on behalf of the
government.
Importance of this function:-
• Easy management of accounts of
government.
• RBI sells and buys securities on
behalf of government.
• RBI provides advice to the
government related to economic
Matters.
• RBI provides loans to the
government.

8. Bankers’ Bank and Supervisory Role
• Relation that customers have
with their Bank, similar type of
relationship RBI and commercial
banks have.
• RBI accepts deposits of
commercial banks and provide
loans to commercial banks.
• RBI performs supervisory role
for proper compliance of rules/
policies and other instructions
by commercial banks.
Importance of this function:-
• Easy control and monitoring of
banking system.
• Working of commercial banks in
favour of customers.

9. Lender of Last Resort
• When commercial banks are not
able to collect funds from market
when they require, that time RBI
provides loan to commercial banks.
This is lender of last resort function
of RBI.
• RBI perform this function because
RBI holds reserves of commercial
banks as security.
• RBI provides loans on the basis of
securities and without securities to
commercial banks.
Importance of this function:-
• Stability of banking system.
• Availability of sufficient funds for
commercial banks.
• Maintaining sufficient liquidity
commercial banks.

10. Custodian of of Foreign Exchange Reserves
• Central bank RBI works as
custodian of of foreign exchange
reserves of country.
• RBI holds reserves with itself to
maintain Exchange rate or to
control on large scale
fluctuations in exchange rate.
• For maintaining exchange rates
table RBI sales and purchases
foreign exchange in international
money market.
Importance of this function:-
• Stability in foreign exchange
rates.
• Develop faith in international
trade by stable exchange rates.
• This function also enable RBI to
cope up with adverse balance of
payment conditions

11. Clearing House Function
• RBI performs the function of clearing
liability of commercial banks on each
other.
• RBI can perform this function because all
the commercial banks have their account
with RBI and they have to maintain some
reserves with RBI
• For example:-
Ram, Customer of SBI has made a payment
of 5 lakhs through cheque to shyam who is
a customer of HDFC. And similarly Mohan
customer of HDFC made a payment of 7
lakhs rupees to Rohan who is a customer of
SBI.
Here HDFC has Net liability of 2 lakh rupees.
RBI will deduct 2 lakh rupees from account
of HDFC and deposit this amount in SBI
account.
Importance of this function:-
• Avoid transfer of cash between banks.
• Easy clearing of liability of commercial
banks on each other.

12. Credit Control
• Credit creation process can fluctuate
economy if it is not controlled.RBI
perform this function.
• Through the Monetary policy, RBI try
to control credit creation process in
economy according to conditions.
• During inflationary conditions RBI try
to reduce the credit creation process
and during the recessionary
conditions RBI try to expand the credit
creation process.
• For controlling credit creation process
RBI uses two types of tools,
quantitative tools and qualitative
tools.
Importance of this function:-
• Economic stability in the economy.
• Protecting people from the adverse
effect of economic fluctuations.
• Maintaining Growth of agriculture and
industrial sector.
• This function is further explained in
next PPT and video.