CONTENTS
INTRODUCTION……………………………………… 2
OBECTIVES OF RBI………………………………….. 3
FUNCTIONS OF RBI…………………………………... 3-5
NEW INITIATIVES IN RBI…………………………… 6-7
CASE STUDY……………………………………………. 7-10
CONCLUSION…………………………………………… 11
REFERENCES……………………………………………. 12
1
INTRODUCTION
The Reserve Bank of India (RBI) is the central bank of India, which began operations on Apr.
1, 1935, under the Reserve Bank of India Act. The Reserve Bank of India uses monetary
policy to create financial stability in India, and it is charged with regulating the country’s
currency and credit systems. the RBI serves the financial market in many ways. The bank sets
the overnight interbank lending rate. The Mumbai Interbank Offer Rate (MIBOR) serves as a
benchmark for interest rate–related financial instruments in India.
The main purpose of the RBI is to conduct consolidated supervision of the financial sector in
India, which is made up of commercial banks, financial institutions, and non-banking finance
firms. Initiatives adopted by the RBI include restructuring bank inspections, introducing off-
site surveillance of banks and financial institutions, and strengthening the role of auditors
First and foremost, the RBI formulates, implements, and monitors India’s monetary policy. The
bank’s management objective is to maintain price stability and ensure that credit is flowing to
productive economic sectors. The RBI also manages all foreign exchange under the Foreign
Exchange Management Act of 1999. This act allows the RBI to facilitate external trade and
payments to promote the development and health of the foreign exchange market in India.
The RBI acts as a regulator and supervisor of the overall financial system. This injects public
confidence into the national financial system, protects interest rates, and provides positive
banking alternatives to the public. Finally, the RBI acts as the issuer of national currency. For
India, this means that currency is either issued or destroyed depending on its fit for current
circulation. This provides the Indian public with a supply of currency in the form of
dependable notes and coins, a lingering issue in India.
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OBECTIVES OF RBI:
The Preamble to the Reserve Bank of India Act, 1934 spells out the objectives of the Reserve
Bank as: “to regulate the issue of Bank notes and the keeping of reserves with a view to
securing monetary stability in India and generally to operate the currency and credit system of
the country to its advantage.”
1. Price Stability: Price Stability implies promoting economic development with
considerable emphasis on price stability. The centre of focus is to facilitate the
environment which is favourable to the architecture that enables the developmental
projects to run swiftly while also maintaining reasonable price stability.
2. Restriction of Inventories: Overfilling of stocks and products becoming outdated due
to excess stock often results in the sickness of the unit. To avoid this problem the
central monetary authority carries out this essential function of restricting the
inventories. The main objective of this policy is to avoid over-stocking and idle money
in the organization.
3. To Promote Efficiency: It is another essential aspect where the central banks pay a lot
of attention. It tries to increase the efficiency in the financial system and tries to
incorporate structural changes such as deregulating interest rates, easing operational
constraints in the credit delivery system, introducing new money market instruments
etc.
4. Equitable Distribution of Credit: The policy of the Reserve Bank aims equitable
distribution to all sectors of the economy and all social and economic classes of people
FUNCTIONS OF RBI:
Reserve Bank of India being an apex court of the center enjoys enormous power and functions
under banking system in India. It has monopoly over the issue of bank-notes and monetary
system of the country. These power and functions as to issue of bank notes and currency
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system are governed by the Reserve Bank of India Act, 1934. Besides it the Banking
Regulation Act, 1949 also empowers certain power and Function of the Reserve Bank.
1. Supervising the Financial System
The financial system includes financial intermediaries, financial markets, and financial assets.
Since there are multiple institutions and assets are involved, it becomes mandatory to lay down
rules and regulations to ensure the smooth operation of the system.
Hence, one of the main functions of the RBI is to instil trust in the financial system among
Indian citizens. Proper implementations of rules by different banks and financial institutions
ensure the safety and security of depositors’ money. Additionally, these institutions can
function efficiently under the constant supervision and guidance of the RBI.
2. Implementing Monetary Policy
The RBI plays a key role in framing the monetary policy with an aim to maintain price stability
while keeping in mind the objective of growth. In addition to this, it stringently monitors the
implementation of these policies.
Once every six months, the Reserve Bank publishes the Monetary Policy Report containing
information about the explanation of inflation dynamics in the last six months and the near-
term inflation outlook and projections of inflation and growth and the balance of risks.
3. Making Payments on Government’s Behalf
One of the main functions of the RBI is that they receive and make payments on behalf of the
Government of India. Reserve Bank of India maintains the Principal Accounts of Central as
well as State Governments at its Central Accounts Section, Nagpur. This way they operate and
maintain the accounts of the Government of India and state governments.
Additionally, the RBI also manages public debt on behalf of the Central and State
Governments. It involves the issue of new rupee loans, payment of interest and repayment of
these loans and other operational matters such as debt certificates and their registration.
Furthermore, the RBI has taken initiatives to make the right investment of surplus cash of the
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Government as a part of fund management. Apart from this, they provide financial advice to
the Government when asked for the same.
4. Managing Foreign Exchange
Another important function of the RBI is to verify if all foreign exchanges take place via the
FEMA (Foreign Exchange Management Act) guidelines. This aids in seamless trade
management across borders and simultaneously ensures transparency in the process.
The RBI plays a distinct role in managing current account transactions and capital account
transactions. The current account transactions include exports, imports, gifts, personal
remittances, and income, where RBI’s role is limited. Alternatively, capital account
transactions include FII/FPI investments, external commercial borrowings, FDI, and NRI
deposits, where RBI specifies conditions for the payments.
5. Acting as a Banker
Banks must maintain minimum cash reserves with the RBI. Thus, every bank has an account
with the RBI. The RBI can also give advance payments and short-term loans to the banks. The
accounts with RBI can be used for setting up inter-bank transactions, clearing money market
transactions, buying/selling of securities, and buying/selling of foreign currencies.
6. Maintaining Price Stability in the Country
The RBI functions stringently to maintain a healthy balance between “future economic growth”
and “price stability” to keep a check on inflation. It does so primarily by changing the repo
rate. The Repo rate is the rate at which RBI lends money to commercial banks. Increasing the
repo rate restricts banks from borrowing money from the RBI, reducing the cash in circulation.
A reduction in circulating money leads to a lowering of the prices of goods and services to a
considerable extent. An increased repo rate also ensures higher returns on fixed-income assets
as bond yields and deposit rates go up. This way, the RBI maintains inflation within the
prescribed limit for economic growth.
NEW INITIATIVES IN RBI
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In a move aimed at revolutionising India's digital payment landscape, Reserve Bank of India
(RBI) Governor Shaktikanta Das, in partnership with the National Payments Corporation of
India (NPCI), unveiled a suite of financial products, according to a press release issued by
NPCI on Wednesday. These offerings, unveiled during the Global Fintech Fest 2023 and in the
presence of industry leaders, are set to create an inclusive, resilient, and sustainable digital
payments ecosystem.
Credit Line On UPI: Revolutionising Access To Credit
The first product in this revolutionary lineup is the "Credit Line on UPI." Designed to promote
financial inclusion and innovation, this offering aims to simplify credit access for individuals
and businesses. Pre-sanctioned credit lines from banks will be made available via the Unified
Payments Interface (UPI), streamlining the credit application and utilisation process.
Key features of this initiative include integrating pre-sanctioned credit lines, creating digital
credit products by banks, interest-free credit periods, defined charges, and user-friendly
channels for credit sanction requests. Furthermore, customers can link multiple pre-sanctioned
credit lines through UPI-enabled apps for seamless transactions. This move ensures that all UPI
apps, including those from third-party providers, will offer end-to-end customer services
related to credit lines.
UPI LITE X And Tap & Pay: Enhancing Offline Transactions
To address connectivity challenges in certain areas, the RBI Governor announced "UPI LITE
X," enabling offline payments via UPI. Users can now send and receive money without an
internet connection, making digital transactions accessible even in remote locations with poor
connectivity. UPI LITE X will be compatible with devices supporting Near Field
Communication (NFC), ensuring swift and hassle-free transactions.
In addition to UPI LITE X, the introduction of "UPI Tap & Pay" signifies a significant leap in
QR code and NFC technology adoption. Users can now complete payments by tapping NFC-
enabled QR codes at merchant locations, providing a convenient and efficient payment method.
Conversational Payments: A Glimpse Into The Future Of Digital Transactions
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The final announcements, "Hello! UPI - Conversational Payments on UPI" and "BillPay
Connect - Conversational Bill Payments," introduce groundbreaking AI-enabled features.
Hello! UPI - Conversational Payments on UPI allows users to make voice-enabled UPI
payments using UPI apps, telecom calls, and IoT devices, initially available in Hindi and
English and soon expanding to regional languages. This innovation aims to enhance
accessibility for senior citizens and digitally inexperienced individuals, making payments as
simple as giving voice commands and entering a UPI PIN.
BillPay Connect - Conversational Bill Payments offers a nationalised number for bill
payments across India. Customers can now fetch and pay bills by simply sending a 'Hi' on
messaging apps. For those without smartphones or immediate mobile data access, bill payment
is possible via a missed call, followed by a callback for verification and authorisation.
Additionally, this feature includes Voice Assisted Bill Payments, allowing customers to
manage bills through voice commands on smart home devices, with instant voice
confirmations.
The introduction of these conversational payment methods underscores a paradigm shift in
human-machine interaction, bringing the convenience of AI-enabled transactions to the
forefront and deepening the reach of digital payments in India, according to the press release.
CASE STUDY: FUNCTIONS OF RBI DURING COVID 19 PANDEMIC
Introduction:
The COVID-19 pandemic, which emerged in late 2019, posed unprecedented challenges to
global economies, including India. As the central banking authority in India, the Reserve Bank
of India (RBI) played a crucial role in mitigating the economic impact of the pandemic. This
case study explores the various functions performed by the RBI during the COVID-19 crisis to
mitigate the cascading effect of the pandemic on the Indian Economy.
The unprecedented shocks from the COVID-19 pandemic jeopardized the global economy and
created an environment of Knightian uncertainty all around. The study uses a combination of
exploratory and analytic approach for evaluating the monetary policy responses initiated since
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January 2020. It is observed that RBI has responded on all four fronts successfully which are
evident through availability of sufficient liquidity and easy credit in the market for all the
stakeholders like central and state governments, large corporates, MSMEs and individuals. RBI
has maintained the momentum of policy response till the return of normalcy in the economy. It
had also ensured that no adverse effect appeared after withdrawal of the stimulus extended as a
policy response against the pandemic.
Since March 2020, the Reserve Bank of India (RBI) has taken numerous measures to fight the
COVID-19 at the financial front. These measures also form part of the Special Economic
Package and the ‘Atmanirbhar Bharat Abhiyaan’ recently announced by the Hon’ble Prime
Minister of India, Narendra Modi.
Various developmental and regulatory policies undertaken by the RBI to address financial
stress caused by COVID-19 include:
1. Liquidity Management
2. Regulation and Supervision
3. Decisions in respect of Financial Markets
Liquidity Management
Targeted Long-Term Repo Operations (TLTROs): RBI will conduct auctions of
targeted term repos of about INR 1 lakh cr for fresh deployment in investment-grade
corporate bonds, commercial paper, non-convertible debentures.
● Cash Reserve Ratio: As a one-time measure, RBI has reduced the cash reserve ratio of
all banks by 100 basis points to 3% of Net Demand and Time Liabilities (NDTL) which
will result in liquidity enhancement of about INR 1.37 lakh cr.
● Marginal Standing Facility: The limit of the banks for borrowing overnight has been
increased from 2% to 3% into the Statutory Liquidity Ratio (SLR). This will allow
additional liquidity of INR 1.37 lakh cr.
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Regulation and Supervision
● Moratorium on Term Loans: RBI has permitted all lending institutions to allow a
moratorium of three months (later extended to six months) on payment of instalments
in respect of all term loans outstanding as on March 1, 2020. These institutions include:
1. Commercial banks like regional rural banks, small finance banks and local area
banks
2. Co-operative banks and all-India Financial Institutions
3. NBFCs like housing finance companies and micro-finance institutions
● Deferment of Interest on Working Capital Facilities: RBI also permitted all lending
institutions to allow a deferment of three months on payment of interest in respect of
working capital facilities sanctioned in the form of cash credit/overdraft of all such
facilities outstanding as on March 1, 2020.
● Easing of Working Capital Financing: All lending institutions are permitted by RBI
to recalculate drawing power by reducing margins and/ or by reassessing the working
capital cycle for the borrowers in respect of working capital facilities sanctioned in the
form of cash credit/overdraft.
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● Support to Real Estate Sector: RBI has permitted an additional time of one year for
the extension of the date for commencement of commercial operations (DCCO) in
respect of all loans provided by NBFCs to the real estate sector.
Decisions in respect of Financial markets
● In recent times, RBI has recognized the growth of the offshore Indian Rupee (INR)
derivative market - the Non-Deliverable Forward (NDF) market and decided to remove
segmentation between the onshore and offshore markets.
● RBI has now permitted banks in India to participate in the NDF market from 1st June
2020 through their branches in India, their foreign branches or through their
International Financial Services Centre (IFSC) Banking Units (IBUs).
The economic impact of Covid-19, causing a setback of approximately two years in GDP
growth and uncertainties in employment and livelihoods, is yet to be fully quantified. Despite
this, central banks and regulatory authorities globally are actively combatting the pandemic's
repercussions. Learning from the Global Financial Crisis (GFC), they have improved response
times and policy transmission quality. Swift operational resilience in the financial sector is
evident, marked by a focus on new capabilities and refining existing systems. Activating policy
rate cuts, liquidity provisions, credit support, asset purchases, and regulatory easing
concurrently strengthened capital positions. Timely interventions addressed both supply and
demand sides, preserving the soundness of the financial system and mitigating pandemic-
related losses. Regulatory easing globally facilitated the flow of financial resources, preventing
shock amplification. With the threat of subsequent waves, ongoing RBI policy presence is
crucial for financial equilibrium. Additionally, to support universal vaccination, RBI can
contribute through easy credit extension and regulatory support for increased production
capacity.
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CONCLUSION
In conclusion, the Reserve Bank of India (RBI) plays a pivotal role in shaping India's economic
landscape. Through its various functions, including monetary policy, currency issuance,
banking regulation, foreign exchange management, and developmental functions, RBI ensures
the stability and growth of the Indian economy.
The Reserve Bank of India (RBI) stands as a cornerstone of India's economic infrastructure,
wielding a diverse range of functions to ensure monetary stability, financial integrity, and
overall economic development. Its proactive role in formulating and implementing monetary
policy, managing currency, regulating financial institutions, and promoting financial inclusion
underscores its significance in shaping the nation's economic trajectory.
As India continues to navigate through dynamic global and domestic economic landscapes, the
RBI's adaptability, foresight, and commitment to innovation will be crucial. The central bank's
initiatives to address emerging challenges, embrace technological advancements, and foster
financial inclusion highlight its dedication to staying at the forefront of economic governance.
The Reserve Bank of India (RBI) stands as the cornerstone of India's economic stability and
development. Through its well-defined functions and responsibilities, the RBI has been
instrumental in formulating and implementing monetary policies that aim at ensuring price
stability, managing the currency effectively, and fostering a sound and secure banking system.
As a regulator and supervisor of the financial system, the RBI plays a crucial role in
maintaining the integrity of the banking sector, safeguarding the interests of depositors, and
promoting the overall health of financial institutions.
In recent times, the RBI has demonstrated adaptability by introducing new tools and policies to
address emerging economic challenges. The central bank has embraced technology to enhance
efficiency in financial transactions, reflecting a commitment to staying at the forefront of
financial innovation. Challenges in the banking sector have been met with regulatory measures
to ensure resilience and stability.
Looking ahead, the RBI's commitment to financial inclusion and stability remains paramount.
Adapting to evolving economic landscapes and technological advancements, the central bank is
poised to play a pivotal role in shaping India's financial future. As the guardian of the nation's
monetary and financial well-being, the RBI is well-positioned to navigate future challenges and
contribute to sustainable economic growth.
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REFERENCES
● The case study that was followed:
https://www.researchgate.net/publication/356942280_COVID-
19_and_Monetary_Response_of_Reserve_Bank_of_India_A_Critical_Review
● https://www.makeinindia.com/rbi-measure-fight-covid-19
● https://www.hindustantimes.com/ht-insight/economy/the-response-of-reserve-bank-of-
india-to-covid-19-do-whatever-it-takes-101626339262642.html
● https://www.thehindu.com/business/Economy/rbi-steps-in-to-ease-covid-19-burden-
small-businesses-msmes-to-get-relief/article34492630.ece
● https://economictimes.indiatimes.com/news/economy/policy/all-covid-related-liquidity-
measures-came-with-a-sunset-date-says-rbi-governor-das/articleshow/90355636.cms
● https://www.livemint.com/industry/banking/rbis-liquidity-growth-supporting-measures-
crucial-for-recovery-from-2nd-covid-wave-experts-11622806442948.html
● https://business.outlookindia.com/banking/rbi-launches-digital-payment-initiatives-to-
foster-financial-inclusion
● http://www.jnpg.org.in/WebDoc/EContent/Company_Account/Functions%20of
%20RBI.pdf
● https://www.jagranjosh.com/general-knowledge/monetary-policy-an-overview-
1448356108-1
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