Explain the functions of the Reserve Bank of India.

The Reserve Bank of India is the central monetary authority of India which regulates the monetary policy of Indian rupee. It started functioning under the RBI Act 1934 and started its operation on 1 April 1935. Its functions differ from country to country. In India, RBI is the apex monetary authority and has many powers for the functioning of the Indian rupee.

The Reserve Bank supervises the functioning of the banks in many ways:

1. RBI maintains an account of all the commercial banks. All the commercial banks have to keep a minimum amount of cash reserve with the RBI. It is the custodian of their cash reserves. In this way, the RBI is the ultimate holder of the cash reserves of the commercial banks.

2. The central bank is the lender of the last resort. Whenever the commercial banks are short of funds they can take loans from the RBI and get their trade bills discounted. This provides great strength to the central banks.

3. It is a bank of central clearance, settlements, and transfers. Its moral persuasion is very effective as far as commercial banks are concerned.

4. RBI ensures that the banks give loans not only to the big industrialists, and rich businessmen but also to small peasants, farmers, and small industries.

5. RBI makes sure that commercial banks do not give an excessive amount of loans. This will lead to a crisis.

6. Periodically, banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate, etc.

This supervision by RBI is important because of the following:

1. It helps to collect economic data from all over the country.

2. It ensures the safety of deposits of the people.

3. It helps to keep a check on the corrupt practices of the country.

4. The information passed from the RBI to the Ministry of Statistics. This helps the formation of the national budget.