Question

Explain any two functions of Reserve Bank of India (RBI).

Hint:

As the "Lender of the Last Resort," the RBI guarantees that the banking system remains solvent even during a financial crisis.

Answer 1

Step 1: Understanding the Concept:
The RBI is the Central Bank of India. Unlike commercial banks, it does not deal directly with the public but controls the entire banking system.

Step 2: Function 1 - Currency Authority (Bank of Issue):
The RBI has the sole right to issue currency notes in the country (except one-rupee notes and coins, which are issued by the Ministry of Finance). This ensures uniformity in the monetary system and allows the RBI to control the money supply.

Step 3: Function 2 - Banker's Bank and Supervisor:
The RBI acts as a banker to all commercial banks. It holds a part of their cash reserves (CRR) and provides them with financial assistance in times of need (Lender of the Last Resort). It also regulates and inspects banks to ensure they follow guidelines.

Step 4: Final Answer:
Two key functions are issuing currency and acting as a banker and supervisor to commercial banks.