Why Reserve Bank of India acts as a Banker's Bank?
Mohammed Julfekar Haider
Reserve bank of India is the central regulating body for all the banks in India. Ever thought why and how? I would be discussing here why reserve bank of India acts as a Banker's bank.
Reserve Bank of India is the Central Bank in our country. It was established in 1935. As a central bank, it has a control over the entire currency and the banking system in India. It acts as the banker to the state as well as Central Government. It has exclusive right to issue currency notes in the country. As an apex bank, it acts as as the banker's bank also. All the commercial banks in India are supposed to keep a cash reserve ratio with this bank.
Commercial banks create credit. It is the duty of the RBI to control the credit through the CRR, bank rate and open market operations. As banker's bank, the RBI facilitates the clearing of checks between the commercial banks and helps inter-bank transfer of funds. It can grant financial accommodation to schedule banks. It acts as the lender of the last resort by providing emergency advances to the banks. It supervises the functioning of the commercial banks and take action against it if need arises.
Did you like this resource? Share it with your friends and show your love!
Responses to "Why Reserve Bank of India acts as a Banker's Bank?"
03 Jan 2014 Member Level:
Very nice article on RBI and its functions. I want to add some point on ' Why RBI is called as banker's bank.'
1. Provides loan to banks/bankers :- As banker give the loan to their customer, similarly RBI gives loan to banks/bankers.
2. Accept Deposits of Banks:- The customer deposit their money to bank for getting interest, similarly RBI accept the deposits of banks and provide the interest to banks for deposit.
3. Rediscount the bills:- Banks discount the bills of its customer for financing uts customer, RBI rediscount these bill to re-finance the bankers.
Here discounting means to that banks provide the money to customers for exchange of bill before maturity date of bill and get the commission for that.
Notify me by email when others post comments to this article.
Do not include your name, "with regards" etc in the comment. Write detailed comment, relevant to the topic.
No HTML formatting and links to other web sites are allowed.
This is a strictly moderated site. Absolutely no spam allowed.
to fill automatically.
(Will not be published, but
to validate comment)
Type the numbers and letters shown on the left.
Subscribe to Email
Get Jobs by Email
Forum posts by Email
Articles by Email
Awards & Gifts
Last 7 Days
Vijay Kumar ...
ISC Technologies, Kochi - India. © All Rights Reserved.
Click the "Follow" button above to follow Tony John