Banking Awareness – Important Roles and Functions of RBI

Dear Readers, Here We have given the History of RBI and List of Roles and Functions of RBI, which was most expected topic for Upcoming Bank Exams. Candidates those who are preparing for IBPS & Bank Exams can make use of this Roles and Functions of RBI Article.

Banking Awareness – Important Roles and Functions of RBI

History of RBI

The Reserve Bank of India is the central bank of the country. RBI was set up on the basis of the recommendations of the Hilton Young Commission. Reserve Bank of India Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank, which commenced operations on April 1, 1935.

The original share capital was divided into shares of 100 each fully paid, which were initially owned entirely by private shareholders. Following India’s independence on 15 August 1947, the RBI was nationalised on 1 January 1949.

The Reserve Bank of India was conceptualized based on the guidelines presented by the Central Legislative Assembly which passed these guidelines as the RBI Act 1934. RBI was conceptualized as per the guidelines, working style and outlook presented by Bhimrao Ramji Ambedkar in his book titled “The Problem of the Rupee – Its origin and its solution” and presented to the Hilton Young Commission.

The bank was set up based on the recommendations of the 1926 Royal Commission on Indian Currency and Finance, also known as the Hilton–Young Commission. The original choice for the seal of RBI was The East India Company Double Mohur, with the sketch of the Lion and Palm Tree. However, it was decided to replace the lion with the tiger, the national animal of India.

The Central Office of the RBI was established in Calcutta (now Kolkata) but was moved to Bombay (now Mumbai) in 1937. The RBI also acted as Burma’s (now Myanmar) central bank until April 1947 (except during the years of Japanese occupation (1942–45)), even though Burma seceded from the Indian Union in 1937. After the Partition of India in 1947, the bank served as the central bank for Pakistan until June 1948 when the State Bank of Pakistan commenced operations. Though set up as a shareholders’ bank, the RBI has been fully owned by the Government of India since its nationalization in 1949.


There are seven major functions of the Reserve Bank of India. They are,

  1. Issue of Bank Notes:

The Reserve Bank of India has the right to issue currency notes except one rupee notes which are issued by the Ministry of Finance.

There are many advantages of Reserve Bank of India.

  • Brings uniformity in notes issue
  • Makes possible effective state supervision
  • Easy to control and regulate with requirements in the economy.
  • Keeps faith of the public in the paper currency.
  1. Banker to Government:

The Reserve Bank manages the banking needs of the Government.  It has to maintain and operate the Government’s deposit accounts.  It represents the Government of India as the member of the IMF and the World Bank.

  1. 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.

  1. Custodian of country’s Foreign Currency Reserves:

The Reserve Bank has the custody of the country’s reserves of international currency, and this enables the Reserve Bank to deal with crisis connected with adverse balance of payments position.

  1. 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 save from their danger from higher rate of interest.

  1. Central Clearance and Accounts Settlement:

It is easy to deal with each other and settle the claim of each on the other through book keeping entries in the books of the Reserve Bank.  The clearing of accounts has now become an essential function of the Reserve Bank.

  1. Controller of Credit:

The supply of money has important implications for economic stability and the importance of control of credit becomes obvious. Credit is controlled by the Reserve Bank in accordance with the economic priorities of the Government.


In every country there is one organization which works as the Central Bank. The function of the central bank of a country is to control and monitor the banking and financial system of the country

In, India the Reserve Bank of India (RBI) is the Central Bank.

RBI is the Regulator of Financial System. The objectives of these regulations include:

  • Controlling money supply in the system, monitoring different key indicators.
  • Maintaining people’s confidence in banking and financial system.

RBI is the Controller and Supervisor of Banking systems. These banks may be:

  • Public sector banks
  • Private sector banks
  • Foreign banks
  • Co-operative banks, or
  • Regional rural banks

IBPS Clerk Mains Preparation Time Table (Day-1)

30 Days Study Plan for IBPS Clerk Mains 2017
Days Quantitative Aptitude Current Affairs Static GK / Banking Awareness Reasoning English
Day-1 Simplification, Wrong term in Number Series Sep 1-7 CMs and Governors / About RBI and its Responsibilities Coding and Decoding Errors in Articles and Preposition
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