Functions of Reserve Bank of India.

The Reserve Bank of India performs the following functions.

Acts as a Bank of Issue : The Reserve Bank has the monopoly of note issue in the country.It has a sole right to issue currency notes of all denominations except one rupee notes.One rupee notes and small coins are issued by ministry of finance.Currency notes are issued under the principle of minimum reserve in the form of gold and foreign exchange reserves of Rs.200 crores out of which at least Rs 115 crores should be in gold.

Bankers to the Government : The Reserve Bank acts as the banker agent and adviser to the central as well as to the stage govt.The central government and State government have accounts with RBI
->It receives all taxes and incurs public expenditure on behalf of the govt.
->It also manages public debts and helps in flotation of new loans for which it is paid some commission.
->It grants loans to the central and state governments for short period not exceeding 90 days.
->It advices the government on financial and economic matters such as loan operations,investments,agricultural and industrial finance , banking,planning,economic development.
->It transfer government funds from one place to another and from one account to another account.
->It provides finance for the development of the government for carrying out five year plans.
->It acts as an agent of the government in dealing with international monetary fund and the world banks.

Acts as a Banker to the Bank : The Reserve bank also acts as the banker's bank All the banks in the country have accounts with RBI. Every scheduled bank must keep certain percentage of its total deposits with the RBI.
Bank also provides financial assistance though loans and advances against up to securities.
The Reserve bank acts as a custodian of cash reserves of other banks and also acts as a clearing agent for commercial banks.
It undertakes supervision and regulation of banks as per the provisions of banking regulation act 1949

Lender of Last Resort : The Reserve bank provides financial assistance to the commercial banks in times of emergencies when all other resources of credit are exhausted.It provides financial assistance by re-discounting the bills by exchange and any other eligible commercial paper.This function of the Reserve Bank is known as " Lender of Last Resort."

Controller of Credit : The Reserve Bank of India acts as the controller of credit.This is perhaps ,the most important function performed by the reserve bank. The Reserve Bank has power to determine the lending policy to be followed by a particular bank or banks.In general, controlling the volume ,direction and quality of credit is one of the most outstanding functions of reserve bank.It employees different methods to control the expansion or contraction of credit and to establish at a desired level.
The following methods are adopted to control the credit.
Bank rate policy
Open market operations
Variation of cash reserves and
Qualitative Credit Control

Custodian of Foreign Exchange Reserve : The Reserve Bank is the custodian of India's foreign exchange reserves.It maintains and stabilizes external values of the rupee.Administers exchange controls of the country.It is also the responsibility of reserve bank to maintain fixed exchange rates with all other member countries of the international monetary fund.