Reserve Bank of India performs central banking functions. RBI formulates, implements and monitors the monetary policy to maintain price stability and ensuring adequate flow of credit to productive sectors.
The credit control methods adopted by the Reserve Bank are Quantitative controls and Qualitative controls.
Bank Rate and Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Open Market Operations, are the quantitative techniques of RBI.
Margins, Maximum limit of credit for specific purposes, Differential interest rates on certain types of advances are the qualitative control methods of RBI.
RBI issues and exchanges or destroys currency and coins not fit for circulation to give the public adequate quantity of supplies of currency notes and coins and in good quality.
Reserve Bank of India (RBI) follows the Minimum Reserves System in issuing currency since 1956.
As per the Minimum Reserves System Reserve Bank maintains Rs.200 Crores Gold and Foreign Currency (including minimum Gold of Rs.115 crores).
It manages the Foreign Exchange Management Act, 1999 to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
RBI Banker to Banks:
Banks are required to maintain a portion of their demand and time liabilities as cash reserves with the Reserve Bank.
For this purpose, they need to maintain accounts with the Reserve Bank.
They also need to keep accounts with the Reserve Bank for settling inter-bank obligations, such as,
clearing transactions of individual bank customers who have their accounts with different banks or
clearing money market transactions between two banks, buying and selling securities and foreign currencies.
In order to facilitate a smooth inter-bank transfer of funds, or to make payments and to receive funds on their behalf, banks need a common banker. By providing the facility of opening accounts for banks, the Reserve Bank becomes this common banker, known as ‘Banker to Banks’ function. As a Banker to Banks, the Reserve Bank also acts as the ‘lender of the last resort’. It can come to the rescue of a bank that is solvent but faces temporary liquidity problems.