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October 12, 2016

Banking Awareness 2016 in Simple Language - Lesson 3

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Banking Awareness 2016 in Simple Language 

Dear Gr8 Ambitionists, this is the 3rd lesson of our Banking Awareness 2016 in Simple Language series. In our previous lessons, we have learnt about the basics of banking, structure of Indian Banking and introduction of the Reserve Bank of India (RBI). In this lesson also, we shall continue learning about the Reserve Bank of India. Please use the comments section below, if you have any doubts or suggestions. Happy Reading :)

Banking Awareness 2016 : ​​Functions of RBI

​We can divide the Functions of the Reserve Bank of India in three categories. They are,
  1. ​Main functions
    2016 Banking Awareness
  2. Regulatory and Supervisory Functions
  3. ​Promotional Functions

​Main Functions of RBI :

  • ​Issue of Bank Notes : RBI issues currency of Rs 2 & above [mas. limit to issue not 10,000 Rs.]
  • ​Banker to Government : RBI manages banking needs of Government. it operates govt. deposit accounts, collect funds and make payments. All transactions of centre and state govt. are carried out by RBI, except Govt. of Jammu & Kashmir.
  • ​Note : In IMF and World Bank RBI represents Govt. of India.
  • ​Banker to Other Banks : RBI has power to control, help and direct other commercial banks.
  • ​Lender of Last Resort : RBI helps commercial banks in the time of need and emergency with finance and rescue it.
  • ​Custodian of Country's Foreign Currency Reserves : The Reserve Bank has the custody of the country's reserves of International Currency and thus RBI can deal with crisis connected with adverse balance of payments option.
  • ​Central clearance and Accounts Settlement : For commercial banks it is easier to deal and settle the claim of each other through RBI clearing keeping entries in the books of Reserve Bank.
  • ​Controller of Credit : RBI controls supply of credit money according to economic priority of the Government.
  • Selective Credit Control : RBI restricts bank finance against sensitive commodities as foods, grains, cotton, textile, oil seeds, etc. For the purpose to restrict bank loans so that the price of these goods may not increase because of holding these goods by using bank finance. 

Regulatory and Supervisory Functions of RBI : 

  • ​Power to issue license to the new banks as well as to existing banks for branch expansion.
  • ​Power of appointment & removal of banking board / personnel.
  • ​Power to regulate the business of banking.
  • ​Power to give directions on functioning of banks from time to time.
  • ​Power to inspect and supervise banks and impose norms of practice.
  • ​Power to conduct audit of the banks.
  • ​Power relating to moratorium, amalgamation & winding up.
  • ​Power to collect & furnish credit information & impose penalty. 

Promotional Functions of RBI :

  • Establishment of Financial Institutions like IDBI, SIDBI, IFCI, ICICI, IRBI.
  • Promotion of agriculture by establishment of NABARD (National Bank of Agricultural & Rural development) & Agriculture College, Pune.
  • ​Promotion of Regional Rural Banks (RRB's) and thereby extending banking facilities to the rural areas.
  • ​Development of foreign trade by helping in establishment of the Export-Import Bank and facilitating the opening of branches in foreign centres by Indian Banks.
  • ​Development of money market by helping in establishment of Discount & Finance house of India Ltd.
  • ​Promotion of Housing Sector by establishing National Housing Bank (NHB)
  • ​Establishment of Deposit Insurance and Credit Guarantee Corporation of India (DICGC).

​That's all for now friends. In our next lesson of Banking Awareness 2016, we shall discuss very important topic, i.e., Methods of Credit Control by RBI. That lesson will be a bit lengthy, but rest assured, I will make it as simple as I can. All the Best :)

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