Functions of RBI

Functions of RBI are divided under three Major heads.
A. Traditional Functions
B. Promotional Functions
C. Supervisory Functions

A. Traditional Functions include:
     1) Issue of Currency Notes
     2) Banker to the government
     3) Banker's bank and Lender of the last resort
     4) Controller of Credit by Deceleration of Monetary Policy
     5) Custodian of Foreign Exchange Reserves
     6) Custodian of Cash Reserves of Commercial Banks

B. Promotional Functions include:
     1) Development of Financial System
     2) Development of Agriculture
     3) Provision of Small scale Industrial Finance
     4) Promotion of Export through Refinance
     5) Provisions of Training
     6) Collection of Data and Publication of Reports
     7) Promotion of Banking Habits

C. Supervisory Functions include:
     1) Granting license to banks and renewal of licenses
     2) Bank Inspections 3) Control over NBFIs
     4) Implementation of the Deposit Insurance Scheme
     5) Central clearing house of payment and settlement systems

Traditional Functions 

Issue of Currency Notes:
RBI has the sole right to issue currency notes. RBI has the sole right to issue bank notes of Rs. 2 and above denominations. However one rupee notes and coins issue by the government of India.

Banker to Government:
1. RBI acts as banker to government. The Governments receive and disburse large sums of money every day. The receipts of government include mainly taxes, duties and other charges. If these large amounts of transactions are left unregulated and uncoordinated, that may cause instability in the money market. Thus, the central bank acts as the custodian of the Government funds.

2. RBI also assists the Government in floating loan and management of public debt, i.e. the debt which the Government owes to the public. It also acts as an agent of Central Government and of all State Governments in India. The Central Bank has the obligation to transact Government business.

3. RBI also provides funds to the Government to meet the short-term financial needs by issue of treasury bills. It also provides 'ways and means' advances to the Government. These 'ways and means' advances are normally taken by the State Governments and are wiped out as and when Government receipts are deposited in the accounts with it. The Central Government can raise funds by issuing securities to the Reserve Bank.

Bankers' Bank and Lender of the Last Resort:
RBI is also called the bankers' bank. It not only keeps deposits of the commercial banks but also lends them in emergencies and for this purpose so it is called the lender of the last resort. The RBI refinances and rediscounts the bills of exchange, promissory notes and other eligible commercial papers to the scheduled commercial banks as per Section17 of the Reserve Bank of India Act, 1934. The RBI also provides refinance to the scheduled commercial banks for increasing their involvement in the lending to the priority sectors. In order to encourage the co-operative banks, the RBI provides loan in subsidized interest. In any case if the commercial banks require liquidity at a point of time, they approach the RBI for assistance.

Controller of Credit by Deceleration of Monetary Policy:
1. RBI is the controller of credit of the economy. It influences the volume of credit created by commercial banks in India. It can do so through monetary policy, the bank rate, statutory reserve ratio, and cash reserve ratio or through open market operations.

2. Traditionally, it has power to increase or decrease the deposit of the scheduled commercial banks required to be deposited with it in order to control the credit creation capacity of banks.

3. When the RBI increases the limit of deposits required making with it, this reduces the liquidity with the banking system resulting in contraction of credit. On the other hand, when the RBI decreases the limit, banks enjoys more liquid cash with the system and result in credit expansion in the economy. According to the Banking Regulation Act, 1949, the Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of securities. Since 1956, selective methods of credit control are increasingly being used by the Reserve Bank.

Custodian of Foreign Exchange Reserves:
1. RBI is the custodian of the foreign exchange reserve of the country and has the responsibility to maintain the official rate of exchange. Its vital function is to maintain the external value of the rupee. By regulating and controlling the foreign exchange transactions, it can satisfy this function.

2. Exchange control means exercise of control over the foreign exchange earnings and disbursement of a country. The Foreign Exchange Management Act (FEMA) empowers the RBI to issue direction for the administration of exchange control. For this purpose the RBI has set up separate department called Foreign Exchange Control department.

Custodian of Cash Reserves of Commercial Banks:
In India or in the world the Commercial banks feel convenient to keep their reserve requirements with the central bank because its notes command the greatest confidence and prestige and the government's banking transactions are conducted by this institution. In fact, the establishment of central banks makes it possible for the banking system to secure the advantages of centralized cash reserves.

The significance of Centralized Cash Reserves (CCR) lies in the following facts:

1. Centralization of cash reserves in the central bank is a source of great strength to the banking system of the country as it inspires the confidence of the public in the commercial banks.

2. Centralized cash reserves can form the basis of a much longer and more elastic credit structure than those scattered among numerous individual commercial banks.

Sea Ports-Towns-International Trade in India

A foreign exchange reserve brings credit to any country which can be achieved through exports. When the imports dominate the exports the reserves decline.

The sea ports are the key factor for the foreign trade. Unless a viable number of vessels are there, the imports may cost us more and the exports may reach the destination lately.

Sea Ports in India:

The Indian sea ports play a vital role in the volume of coastal and foreign trade for handling the ships and their cargoes. Major part of the exports and imports is done through those ports.

There are 12 major sea ports in India. Out of which 6 are on eastern side and another 6 are on western side.

Apart from them, nearly 140 operable minor ports are there. The major ports are governed by the Government of India under "Major Port Trust Act", while the minor ports are administered by the respective state governments.

Importance of the Mumbai Port:

Mumbai port is the largest among all ports in India. It is centrally located on the west coast. Mumbai, being the commercial capital of India and a great industrial centre has the facilities of easy export of manufactured goods and import of raw materials.

Well developed rail, road and air network is there in and around Mumbai connecting the interior parts of the country. Moreover Mumbai is well protected and silt free harbor. The raw materials like cotton, oilseeds, food grains, minerals etc are extensively produced from its hinterland. It is the nearest port of Europe, North America and West Asia (Gulf).

Visakhapatnam Port:

Visakhapatnam is a developed well industrial centre of A.P. It has one of best and well protected natural harbors in India. It has a land locked harbor along the Andhra Pradesh Coast. Arich hinterlands is spread in the states of Andhra Pradesh, Chattisgarh, Madhya Pradesh, Maharashtra and Orissa which are rich in agricultural produces like rice, tobacco, sugar, jute, oilseeds, timber etc. The port is well connected by road ways and railways.

It occupies the third place in handling a high sea borne trade. The items like iron ore, leather goods, timber, oilseeds, cotton, turmeric, manganese, tobacco etc are exported from this port.

Indian Foreign Trade:

Foreign trade is the trade made by a country with the other countries in the world in the matter of exports and imports. Since the distribution of natural resources and finished goods are not equitable in relation to different countries needs, the international trade is a must. It raises the purchasing power and standard of people.

The destination of exports and the origin of imports show the direction of foreign trade. It indicates the important areas of trading with our country.

Every country tries to improve the exports and maintain more foreign exchange reserves. Indian economy has developed to a great extent from importing, self sufficiency and now to exporting level.

The globalization and liberalization also helps the export of the goods considerably. Some times it gives a blow on the native markets also because when it is cheaper in international market the needy country buys from other countries. Our importer (buyer) of specific products no longer be our importer because if he gets the same item from other country at cheaper rate he prefers to buy from it.