What is the role and functions of Reserve Bank of India in Indian financial system?

Reserve Bank of India (RBI) is the central bank of the country. RBI is a statutory body. It is responsible for the printing of currency notes and managing the supply of money in the Indian economy. Initially, the ownership of almost all the share capital was in the hands of non-government shareholders.

How does Reserve Bank of India maintain a control over the commercial banks in India?

Reserve Bank of India also works as a central bank where commercial banks are account holders and can deposit money. RBI maintains banking accounts of all scheduled banks. Commercial banks create credit. It is the duty of the RBI to control the credit through the CRR, repo rate, and open market operations.

How does the RBI control the liquidity of an economy?

LAF’s help the RBI manage liquidity and provide economic stability by offering banks the opportunity to borrow money through repurchase agreements or repos or to make loans to the RBI via reverse repo agreements. LAF’s can manage inflation in the economy by increasing and reducing the money supply.

How does Reserve Bank of India keep a check on the functioning of banks?

Reserve Bank of India (RBI) supervised the banks in the following ways : (i) It monitors the balance kept by banks for day-to-day transactions. (ii) It checks that the banks give loans not just to profit-making businesses and traders but also to small borrowers.

What are the tools that RBI has to control excess money supply in the economy?

And to control this, RBI implements the monetary policy’s Quantitative and Qualitative instruments to achieve economic goals. The main instruments of these policies are CRR, SLR, Bank Rate, Repo Rate, Reverse Repo Rate, Open Market Operations, etc.

How Reserve Bank of India used monetary policy to control the increase in the price level in the economy?

Repo rate is the rate at which RBI lends to its clients generally against government securities. Reduction in repo rate helps the commercial banks to get money at a cheaper rate and increase in repo rate discourages the commercial banks to get money as the rate increases and becomes expensive.