Core Functions of the RBI

1. Monetary Authority (Controller of Credit)

• In 2016, the government amended the RBI Act to introduce a flexible inflation targeting framework: maintaining consumer price inflation at 4% with a band of +/- 2%.
• RBI achieves this by controlling the money supply and cost of credit through qualitative and quantitative instruments (Repo rate, CRR, SLR, OMOs — discussed in detail in the Monetary Policy module).

2. Issuer of Currency

• Exceptions: The One Rupee Note and all coins are minted/issued by the Government of India (Ministry of Finance), but they are put into circulation only through the RBI.
• The One Rupee note bears the signature of the Finance Secretary, while all other bank notes (₹10, ₹20, ₹50, ₹100, ₹200, ₹500) bear the signature of the RBI Governor.
• Minimum Reserve System: Since 1956, RBI issues currency under this system, maintaining a minimum reserve of ₹200 crore, composed of gold coin/bullion (at least ₹115 crore) and foreign securities (₹85 crore).
• Clean Note Policy: RBI's directive to banks not to staple currency notes and to provide clean notes to the public while withdrawing soiled/mutilated notes from circulation.
• Printing Presses: Banknotes are printed at four presses: Nashik (Maharashtra) and Dewas (MP) owned by GOI; Mysore (Karnataka) and Salboni (West Bengal) owned by BRBNMPL (an RBI subsidiary).

3. Banker and Debt Manager to the Government

• Maintains the accounts of the Central and State Governments.
• Manages public debt on behalf of the government — floating new government loans, paying interest, and retiring debt.
• Provides Ways and Means Advances (WMA): Short-term (temporary) loan facilities to the government to bridge mismatches between its receipts and payments at the Repo rate (repayable within 90 days).

4. Banker to Banks (Lender of Last Resort)

• Banks are required to keep a portion of their deposits as Cash Reserve Ratio (CRR) with the RBI.
• Lender of Last Resort: When commercial banks face a severe liquidity crisis and fail to obtain funds from other commercial sources, they can approach the RBI. RBI provides them with liquidity against eligible securities, preventing bank failures and systemic collapse.
• RBI also facilitates the clearance of cheques and settlement of inter-bank obligations through its clearing houses.

5. Regulator and Supervisor of the Financial System

• Licensing of new banks and branch expansion.
• Laying out parameters of banking operations to protect depositors' interests and ensure cost-effective banking services.
• Management regulations: Approving the appointment of Bank CEOs and boards.
• Prescribing capital adequacy norms, asset classification, and provisioning norms (NPA management).
• Conducting physical inspections and remote off-site surveillance (OSMOS - Off-Site Surveillance and Monitoring System).

6. Manager of Foreign Exchange and Developmental Role

• RBI manages India's foreign exchange reserves and implements the Foreign Exchange Management Act, 1999 (FEMA).
• Objective: To facilitate external trade and payment and promote orderly development and maintenance of the foreign exchange market in India.
• RBI intervenes in the forex market (buying/selling dollars) to contain extreme volatility in the Rupee's exchange rate.

• Setting up specialized developmental institutions earlier: IDBI, NABARD, NHB, SIDBI (all initially promoted or heavily funded by RBI).
• Financial Inclusion: Mandating Priority Sector Lending (PSL) targets, "no-frills" accounts (now BSBDAs), and promoting mobile banking/payment banks to reach the unbanked masses.