Development and Regulatory Role of Reserve Bank of India



Development and Regulatory Role of Reserve Bank of India


                The Reserve Bank of India(RBI) has been playing an important role in the economy of the country both in its regulatory and promotional aspects. Since the inception of planning in 1951, the development activities are gaining momentum in the country. Accordingly, more and more responsibilities have been entrusted with the RBI both in the regulatory and promotional area. Nowadays, the RBI has been performing a wide range of regulatory and promotional functions in the country.

The following are some of the regulatory and promotional functions performed by the RBI:

1.       Regulating the Volume of currency:  The RBI is performing the regulatory role in issuing and controlling the entire volume of currency in the country through its Issue Department. While regulating the volume of currency the RBI is giving priority on the demand for currency and the stability of the economy equally.

2.       Regulating Credit: The RBI is also performing the role to control the credit money created by the commercial banks through its quantitative and qualitative methods of credit control and thereby maintains a balance in the money supply of the country.

3.       Control over Commercial Banks: Another regulatory role performed by the RBIs to have control over the functioning of the commercial banks. It also enforces certain prudential norms and rational banking principles to be followed by commercial banks.

4.       Determining the Monetary and Credit Policy; The RBI has been formulating the monetary and credit policy of the country every year and thereby it controls the Stability Liquidity Ratio(SLR), Cash Reserve Ratio(CRR), bank rate, interest rate, credit to priority sectors etc.

5.       Mobilizing savings: The RBI is playing a vital promotional role to mobilize savings through its member commercial banks and other financial institutions.RBI is also guiding the commercial banks to extend their banking network in the unbanked rural and semi-urban an also to develop banking habits among the people. All these have led to the attainment of a greater degree of monetization of the economy and has been to reduce the activities of indigenous bankers and private money lenders.

6.       Institutional Credit to Agriculture: the RBI has been trying to increase the flow of institutional credit to agriculture from the very beginning. Keeping these objectives in mind, the RBI set up ARDC in 1962 for meeting the long term credit requirement of rural areas. Later on, in July 1982, the RBI set up NABARD( National Bank for Agriculture and Rural Development) and merged ARDC with it to look after its agricultural credit functions.

7.       Specialized Financial Institutions: The RBI has also been playing an important promotional role for setting specialized financial institutions for meeting the long term credit needs of large and small scale industries and other sectors. Accordingly, the RBI has promoted the development of various financial institutions like WCI, IDBI, ICICI, SIDBI, SFCs, Exim Bank, etc. which are making a significant contribution to industry and trade of the country.

8.       Security to Depositors: In order to remove the major hindrance to the deposit mobilization arising out of frequent bank failures, the RBI took the initiative to set up the Deposit Insurance Corporation of India in 1962. The most important objective of this corporation is to provide security to the depositors against such failures.

9.       Advisory functions: The RBI is also providing advisory functions to both the Central and State governments on both financial matters and also on general economic problems.

10.   Policy Support: The RBI is also providing active policy support to the government through its investigation research on serious economic problems and issues of the country and thereby helps the Government to formulate its economic policies in a most rational manner.
Role of RBI,

Thus, it is observed that the RBI has been playing a dynamic role in the economic development process of the country through its regulatory and promotional framework.

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