Introduction:

The central bank was established on 1^st of April 1935 as per RBI act of 1934 as a private shareholders bank with a share capital of Rs 5CR after independence, the RBI was nationalized by the govt. on 1^st January of 1949 and renamed as Central bank of India. Today the central bank functions an important role in the development strategy of govt. of India.

The RBI, as the central bank of India performs the traditional functions and at the same time, it also undertakes developmental and other functions. These functions are discussed below.

Functions of Central Bank:

• Traditional functions:-
• Monopoly of note issue: Under section 22 of the RBI act the bank has the sole night to issue of currency notes of all denominations of RS 10,20,50,100, 500, 1000 in the country. The RBI follows minimum reserve system while issuing currency notes since 1956 .it has to maintain reserves gold, silver and foreign exchange against issue of currency notes. It has to maintain a minimum reserves in govt securities. The govt (Ministry of finance) issue currency of RS 1 and coins of all denominations.
• Bankers to the govt.: RBI acts as a banker, agent and advisor to the govt. RBI performs the same functions as the commercial banks perform  to their customers such as it receives deposits from the govt. and advances loans to it when is it need. It receives and makes all payments on behalf of the govt. RBI acts as an agent of the govt. in respect of the country’s relations with international institutions like IMF and world bank. It gives useful advises to the govt. on important economic matters such as foreign exchange policy, monetary policy, planning and budgetary policy etc.
• Bankers bank: The activities of all commercial banks are controlled and managed by RBI. The regulation of banks may be related to their licensing, branch expansion ,liquidity of assets etc. Every commercial banks has to maintain certain portion of its total deposit in the form of cash reserves with the RBI. The cash reserve with the RBI help for commercial banks in times of financial difficulties. The RBI also gives credit to the commercial banks by discounting of bills and advances money on various securities.
• Lender of the last resort: RBI helps commercial banks in times of their financial crisis when commercial banks are not able to get financial assistance from any source. RBI comes to their rescue that is the commercial banks can approach the RBI for loans. The RBI lends money to commercial banks against the rediscounting of bills, bills of exchange or govt. securities. This role of the central bank saves the commercial bank from being bankrupt.
• Clearing house: The RBI act as a clearing house for transfer and settlement of mutual claims of the commercial banks. As it keeps the cash reserve of all commercial banks to settle each other debts or transfer of funds from one bank to another bank through the RBI. Inter Bank indebtedness can be easily settled without using cash.
• Leader of money market: The RBI is the leader of money market in the country. It control the activities of different components of the money market such as commercial bank financial institutions etc.
• Controller of credit: The important function of the RBI is the control of credit. It is necessary that the supply of credit and the use of credit should be in appropriate amount and direction for this purpose. It uses various credit control measures such as bank rates, open market operations, variable reserve ratio, and selective credit controls etc. By controlling the supply of money and credit the central bank controls various economic variables such as price, interest rates, Etc. in the economy.
• Custodian of foreign exchange reserve: RBI act as a custodian of foreign exchange reserves it is required to maintain reserves like gold, silver and foreign exchange to back the issue of currency notes and to meet international payments. It has to maintain exchange rates and enforce exchange control and restriction imposed by the government in order to economize the use of foreign exchange and maintain external stability. The RBI has a separate exchange control department to supervises and control foreign exchange reserves.
• Developmental functions:-
• Agriculture finance: The RBI has been extending advice and financial assistant to the co-operative credit institutions for the development of agriculture. For this purpose it has set up and agricultural credit department and separate funds for providing medium and long term finance. The functions of this development and those of the funds have been passed on to the National Bank for Agriculture and Rural Development (NABARD).
• Industrial finance: The RBI provides credit facility to both small scale and large scale industries through state finance corporation SFC IFCI, IDBI, ICICI. It also established National industrial credit Fund in 1964 to provide financial assistant to large scale industries.
• Other functions:-
• Research function: The RBI collects and publishes information relating to agriculture, industrial, financial sector of the economy, exports and imports, banking trends in money and capital markets, price trends etc. On the basis of this information the government can formulate and implement its economic and monitory policies. It also issues special plans, journals and various research papers.
• Special functions: The RBI conducts special debates and seminar on various subjects. It also provides training facility to bank staff it maintains regular contracts with various international financial institutions. It also suggests remedies for the problems of poverty, unemployment ,inflation and deflation etc.

also read: explain the functions of commercial banks.