Banking
Main Functions
Central bank is the apex body of the banking structure. Each and every country has the central bank but their name differs from country to country. In India the central bank is called RBI and the functions are as follows:
Issuer of currency:
• Under section22 RBI has right to issue the currency note.
• RBI has separate department for the issue of the currency note.
• 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.
• RBI is required to maintain the foreign reserve exchange of 200 crores out of which 150 crore should be in the form of gold.
Banker to Government:
• RBI acts as a government banker, agent and advisor to both central government and state government.
• RBI keeps the cash balance, free of interest and also receives and make payments in the behalf of government and carry out other banking operations.
• It provides loans to both union and state government and also helps them to clear the public debt.
• It gives advice to the government on all matters relating to monetary and banking.
Bankers Bank and Lender of Last Resort:
• According to banking companies’ act of 1949, every schedule bank has to maintain the cash balance of 5% demand liabilities, and 2% time liabilities.
• In 1962 the system was abolished and it was said that 3% of the cash reserve will be saved on aggregate deposit liabilities.
• The schedule bank can borrow the money from the RBI on the basis of securities.
• RBI being the apex body has to give his helping hands to all the commercial banks in the case of banking crisis, so it is called as Lender of Last Resort.
Control of Credit:
• RBI has the power to influence the volume of credit created by...
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