Quick Links
Quick Links
UPSC Exams
Latest Update
UPSSSC Junior Assistant Admit Card 2025 Fastag Annual Pass 2025 UGC NET Exam Analysis 2025 UGC NET Question Paper 2025 AP LAWCET Result 2025 UGC NET City Slip 2025 UPSC DAF 1 2025 Rajasthan PTET Answer Key 2025 UPSC Prelims Result 2025 UPSC IFS Result 2025 8th Pay Commission Salary Hike News UPSC 2024 Prelims Answer Key UPSC 2026 Calendar UPSC Admit Card 2025 UPSC Prelims Result Date 2025 UPSC Prelims Answer Key 2025 UPSC Prelims 2025 Expected Cut Off UPSC Prelims Exam Analysis 2025 UPSC Final Result 2025 UPSC Topper Shakti Dubey UPSC Application Rejected List 2025 UPSC Application Date Re-Extended UPSC Interview Date 2024 UPSC Notification 2025 UPSC Admit Card 2025 for Prelims UPSC CSE Prelims 2025 Question Paper UPSC IFS Notification 2025 Indian Navy MR Result 2025 Indian Navy SSR Result 2025
Coaching
UPSC Current Affairs
Syllabus
UPSC Notes
Previous Year Papers
UPSC Mains Previous Year Question Papers Last 25 Years UPSC Prelims Question Papers Last 10 Years UPSC Question Papers UPSC CSE Prelims 2025 Question Paper UPSC Mains 2024 Model Answers UPSC 2024 Question Papers UPSC 2023 Question Papers UPSC 2022 Question Papers UPSC 2021 Question Papers UPSC 2020 Question Papers UPSC 2019 Question Papers UPSC 2018 Question Papers UPSC 2017 Question Papers UPSC 2016 Question Papers UPSC 2015 Question Papers UPSC 2014 Question Papers UPSC CSAT Question Papers UPSC IFS Previous Year Paper UPSC Assistant Labour Commissioner Previous Question Year Papers UPSC Combined Geo Scientist Previous Year Paper UPSC APFC Previous Year Question Papers UPSC CMS Previous Year Question Paper UPSC EPFO Previous Year Paper UPSC Air Safety Officer Previous Year Papers UPSC SO Steno Previous Year Paper UPSC IES ISS Previous Year Question Papers
Mock Tests
UPSC Editorial
Bilateral Ties
Albania India Relations India Algeria Relations Andorra India Relations India Angola Relations India Antigua Barbuda Relations India Argentina Relations Austria India Relations India Azerbaijan Relations Bahamas India Relations India Bahrain Relations Barbados India Relations India Belarus Relations Belgium India Relations Belize India Relations Benin India Relations Bolivia India Relations India Bosnia Herzegovina Relations India Botswana Relations Brazil India Relations Brunei India Relations Bulgaria India Relations Burundi India Relations Cabo Verde India Relations India Cambodia Relations India Cameroon Relations Canada India Relations India Cayman Islands Relations India Central African Republic Relations India Chad Relations Chile India Relations India Colombia Relations India Comoros Relations India Democratic Republic Of The Congo Relations India Republic Of The Congo Relations India Cook Islands Relations India Costa Rica Relations India Ivory Coast Relations India Croatia Relations India Cyprus Relations India Czech Republic Relations India Djibouti Relations India Dominica Relations India Dominican Republic Relations India Ecuador Relations India El Salvador Relations India Equatorial Guinea Relations India Eritrea Relations Estonia India Relations India Ethiopia Relations India Fiji Relations India Finland Relations India Gabon Relations India Gambia Relations India Georgia Relations Germany India Relations India Ghana Relations India Greece Relations India Grenada Relations India Guatemala Relations India Guinea Relations India Guinea Bissau Relations India Guyana Relations India Haiti Relations India Holy See Relations India Honduras Relations India Hong Kong Relations India Hungary Relations India Iceland Relations India Indonesia Relations India Iran Relations India Iraq Relations India Ireland Relations India Jamaica Relations India Kazakhstan Relations India Kenya Relations India Kingdom Of Eswatini Relations India Kiribati Relations India Kuwait Relations India Kyrgyzstan Relations India Laos Relations Latvia India Relations India Lebanon Relations India Lesotho Relations India Liberia Relations Libya India Relations Liechtenstein India Relations India Lithuania Relations India Luxembourg Relations India Macao Relations Madagascar India Relations India Malawi Relations India Mali Relations India Malta Relations India Marshall Islands Relations India Mauritania Relations India Micronesia Relations India Moldova Relations Monaco India Relations India Montenegro Relations India Montserrat Relations India Morocco Relations Mozambique India Relations India Namibia Relations India Nauru Relations Netherlands India Relations India Nicaragua Relations India Niger Relations India Nigeria Relations India Niue Relations India North Macedonia Relations Norway India Relations India Palau Relations India Panama Relations India Papua New Guinea Relations India Paraguay Relations Peru India Relations India Philippines Relations Qatar India Relations India Romania Relations Rwanda India Relations India Saint Kitts And Nevis Relations India Saint Lucia Relations India Saint Vincent And Grenadines Relations India Samoa Relations India Sao Tome And Principe Relations Saudi Arabia India Relations India Senegal Relations Serbia India Relations India Sierra Leone Relations India Singapore Relations India Slovak Republic Relations India Slovenia Relations India Solomon Islands Relations Somalia India Relations India South Sudan Relations India Spain Relations India Sudan Relations Suriname India Relations India Sweden Relations India Syria Relations India Tajikistan Relations Tanzania India Relations India Togo Relations India Tonga Islands Relations India Trinidad And Tobago Relations India Tunisia Relations India Turkmenistan Relations India Turks And Caicos Islands Relations India Tuvalu Relations India Uganda Relations India Ukraine Relations India Uae Relations India Uruguay Relations India Uzbekistan Relations India Vanuatu Relations India Venezuela Relations India British Virgin Islands Relations Yemen India Relations India Zambia Relations India Zimbabwe Relations
Books
Government Schemes
Production Linked Incentive Scheme Integrated Processing Development Scheme Rodtep Scheme Amended Technology Upgradation Fund Scheme Saathi Scheme Uday Scheme Hriday Scheme Samagra Shiksha Scheme India Nishta Scheme Stand Up India Scheme Sahakar Mitra Scheme Mdms Mid Day Meal Scheme Integrated Child Protection Scheme Vatsalya Scheme Operation Green Scheme Nai Roshni Scheme Nutrient Based Subsidy Scheme Kalia Scheme Ayushman Sahakar Scheme Nirvik Scheme Fame India Scheme Kusum Scheme Pm Svanidhi Scheme Pmvvy Scheme Pm Aasha Scheme Pradhan Mantri Mahila Shakti Kendra Scheme Pradhan Mantri Lpg Panjayat Scheme Mplads Scheme Svamitva Scheme Pat Scheme Udan Scheme Ek Bharat Shresth Bharat Scheme National Pension Scheme Ujala Scheme Operation Greens Scheme Gold Monetisation Scheme Family Planning Insurance Scheme Target Olympic Podium Scheme
Topics
NASA Space Missions
NASA Mercury-Redstone 3 (Freedom 7) Mission NASA Mercury-Redstone 4 (Liberty Bell 7) Mission NASA Mercury-Atlas 6 (Friendship 7) Mission NASA Mercury-Atlas 7 (Aurora 7) Mission NASA Mercury-Atlas 8 (Sigma 7) Mission NASA Mercury-Atlas 9 (Faith 7) Mission NASA Gemini 3 Mission NASA Gemini 4 Mission NASA Gemini 5 Mission NASA Gemini 7 Mission NASA Gemini 8 Mission NASA Gemini 9 Mission NASA Gemini 10 Mission NASA Gemini 11 Mission NASA Gemini 12 Mission NASA Apollo 1 (AS‑204) Mission NASA Apollo 7 Mission NASA Apollo 8 Mission NASA Apollo 9 Mission NASA Apollo 10 Mission NASA Apollo 11 Mission NASA Apollo 12 Mission NASA Apollo 13 Mission NASA Apollo 14 Mission NASA Apollo 15 Mission NASA Apollo 16 Mission NASA Apollo 17 Mission NASA Skylab Orbital Workshop Mission NASA Skylab 2 Mission NASA Skylab 3 Mission NASA Skylab 4 Mission NASA Apollo–Soyuz Test Project Mission NASA STS‑1 Columbia Mission NASA STS‑3 Columbia Mission NASA STS‑7 Challenger Mission NASA STS‑8 Challenger Mission NASA STS‑41B Challenger Mission NASA STS‑41G Discovery (1st female EVA) Mission NASA STS‑51L Challenger (accident) Mission NASA STS‑26 Discovery (Return‑to‑Flight) Mission NASA STS‑31 Discovery (Hubble Launch) Mission NASA STS‑49 Endeavour (first capture EVA) Mission NASA STS‑61 Endeavour (Hubble Servicing 1) Mission NASA STS‑73 Columbia (microgravity) Mission NASA STS‑95 Discovery (John Glenn returns) Mission NASA STS‑107 Columbia (accident) Mission NASA STS‑114 Discovery (RTF‑2) Mission NASA STS‑120 Discovery (Node 2) Mission NASA STS‑125 Atlantis (Final Hubble Service) Mission NASA STS‑132 Atlantis Mission NASA STS‑135 Atlantis (Final Shuttle flight) Mission NASA Artemis I (Orion/ SLS‑1) Mission NASA Artemis II (Planned) Mission NASA Artemis III (Planned lunar landing) Mission NASA Mariner 4 Mission NASA Mariner 6 Mission NASA Mariner 7 Mission NASA Mariner 9 Mission NASA Viking 1 Orbiter/Lander Mission NASA Viking 2 Orbiter/Lander Mission NASA Mars Pathfinder & Sojourner Mission NASA Mars Global Surveyor Mission NASA 2001 Mars Odyssey Mission NASA Mars Exploration Rover – Spirit Mission NASA Mars Exploration Rover – Opportunity Mission NASA Mars Reconnaissance Orbiter Mission NASA Phoenix Mars Lander Mission NASA InSight Mars Lander Mission NASA Mars 2020 (Perseverance & Ingenuity) Mission NASA Mars Sample Return – SRL (planned) Mission NASA Pioneer 10 Mission NASA Pioneer 11 Mission NASA Voyager 1 Mission NASA Voyager 2 Mission NASA Galileo Jupiter Orbiter/Probe Mission NASA Cassini–Huygens Mission NASA New Horizons (Pluto & KBO) Mission NASA Juno Mission NASA Europa Clipper (planned) Mission NASA Parker Solar Probe Mission NASA Solar Orbiter (ESA/NASA) Mission NASA Surveyor 1 Mission NASA Lunar Orbiter 1 Mission NASA Lunar Prospector Mission NASA LCROSS Mission NASA LADEE Mission NASA Lunar Reconnaissance Orbiter (LRO) Mission NASA CAPSTONE Mission NASA VIPER Rover (planned) Mission NASA NEAR Shoemaker Mission NASA Deep Space 1 Mission NASA Stardust Mission NASA Genesis Mission NASA Deep Impact Mission NASA Dawn (Vesta/Ceres) Mission NASA OSIRIS‑REx Mission NASA Lucy Mission NASA DART Mission NASA Landsat‑1 (ERTS‑1) Mission NASA Landsat‑5 Mission NASA Landsat‑9 Mission NASA Terra Mission NASA Aqua Mission NASA Aura Mission NASA Suomi NPP Mission NASA Sentinel‑6 Michael Freilich Mission NASA ICESat‑2 Mission NASA GRACE‑FO Mission NASA SMAP Mission NASA GPM Core Observatory Mission NASA CALIPSO Mission NASA CloudSat Mission NASA NISAR (NASA‑ISRO) Mission NASA Explorer 1 Mission NASA COBE Mission NASA Compton Gamma Ray Observatory Mission NASA Hubble Space Telescope Mission NASA Chandra X‑ray Observatory Mission NASA Spitzer Space Telescope Mission NASA WISE Mission NASA Kepler Mission NASA TESS Mission NASA Fermi Gamma‑ray Space Telescope Mission NASA NICER Mission NASA IXPE Mission NASA Roman Space Telescope (planned) Mission NASA NuSTAR Mission NASA GALEX Mission NASA Swift Mission NASA SOHO (ESA/NASA) Mission NASA Cluster II (ESA/NASA) Mission NASA TIMED Mission NASA STEREO‑A/B Mission NASA MMS Mission NASA IRIS Mission NASA Solar Dynamics Observatory Mission NASA X‑37B OTV‑1 (USAF/NASA liaison) Mission NASA X‑59 QueSST Mission NASA Mars Helicopter Ingenuity Mission NASA Valkyrie R5 Robot Mission NASA Low‑Boom Flight Demo Mission NASA CRS‑1 Dragon Mission NASA CRS‑1 Cygnus Mission NASA Crew Dragon Demo‑2 Mission NASA Starliner OFT‑2 Mission NASA STS-2 (Shuttle flight) Mission NASA STS-4 (Shuttle flight) Mission NASA STS-5 (Shuttle flight) Mission NASA STS-6 (Shuttle flight) Mission NASA STS-41C (Shuttle flight) Mission NASA STS-41D (Shuttle flight) Mission NASA STS-51A (Shuttle flight) Mission NASA STS-61C (Shuttle flight) Mission NASA STS-26 (Shuttle flight) Mission NASA STS-27 (Shuttle flight) Mission NASA STS-29 (Shuttle flight) Mission NASA STS-30 (Shuttle flight) Mission NASA STS-32 (Shuttle flight) Mission NASA STS-34 (Shuttle flight) Mission NASA STS-38 (Shuttle flight) Mission NASA STS-45 (Shuttle flight) Mission NASA STS-60 (Shuttle flight) Mission NASA STS-70 (Shuttle flight) Mission NASA STS-71 (Shuttle flight) Mission NASA STS-73 (Shuttle flight) Mission NASA STS-88 (Shuttle flight) Mission NASA STS-92 (Shuttle flight) Mission NASA STS-97 (Shuttle flight) Mission NASA STS-99 (Shuttle flight) Mission NASA STS-100 (Shuttle flight) Mission NASA STS-104 (Shuttle flight) Mission NASA STS-106 (Shuttle flight) Mission NASA STS-110 (Shuttle flight) Mission NASA STS-112 (Shuttle flight) Mission NASA STS-115 (Shuttle flight) Mission NASA STS-116 (Shuttle flight) Mission NASA STS-117 (Shuttle flight) Mission NASA STS-118 (Shuttle flight) Mission NASA STS-120 (Shuttle flight) Mission NASA STS-122 (Shuttle flight) Mission NASA STS-123 (Shuttle flight) Mission NASA STS-126 (Shuttle flight) Mission NASA STS-130 (Shuttle flight) Mission NASA Vanguard 1 Mission NASA Transit 1B Mission NASA Echo 1 Mission NASA Telstar 1 Mission NASA Syncom 3 Mission NASA ATS‑6 Mission NASA Skynet Mission NASA Nimbus‑1 Mission NASA Nimbus‑7 Mission NASA ERS-1 Mission NASA SeaSat Mission NASA QuikSCAT Mission NASA Jason‑1 Mission NASA Jason‑3 Mission NASA ICESat Mission NASA Earth Observing‑1 Mission NASA Orbiting Carbon Observatory‑2 Mission NASA CYGNSS Mission NASA PACE Mission NASA TRMM Mission NASA Terrestrial Planet Finder (cxl) Mission NASA Laser Interferometer Space Antenna (LISA) Mission NASA Explorer 33 Mission NASA Voyager Interstellar Mission Mission NASA Helios‑A Mission NASA Helios‑B Mission NASA ISEE‑3 (ICE) Mission NASA ACE Mission NASA DSCOVR Mission NASA IBEX Mission NASA Solar Orbiter Heliospheric Imager Mission NASA SAGE‑III ISS Mission NASA SPACE Telescope Imaging Spectrograph Mission NASA ARIEL (ESA/NASA) Mission NASA OSAM‑1 (Restore‑L) Mission NASA Dragonfly (Titan rotorcraft) Mission NASA VERITAS (Venus orbiter) Mission NASA DAVINCI (Venus probe) Mission NASA SPHEREx Mission NASA MAGGIE (Mars Geophysical) Mission NASA CLPS – Peregrine Mission NASA CLPS – VIPER Delivery Mission NASA CAPSTONE Mission NASA Gateway (HALO / PPE) Mission NASA Mars Telecommunication Orbiter (cxl) Mission NASA Mars Polar Lander (MPL) Mission NASA Mars Climate Orbiter Mission NASA Pathfinder Mission Mission NASA SLS Block 1B (Exploration Upper Stage) Mission NASA Orion Crew Module Mission NASA Commercial LEO Destinations – Axiom Station Mission NASA ISS Expedition 1 Mission NASA ISS Expedition 70 Mission NASA CRS‑11 (Dragon) Mission NASA CRS‑21 (Dragon 2) Mission NASA Snoopy CubeSat Mission
Home / IAS Preparation / RBI (Reserve Bank of India)

RBI (Reserve Bank of India): Formation, Structure, Functions & More| UPSC Notes

Last Updated on Aug 07, 2024
Also Read RBI (Reserve Bank of India) in Hindi
Download As PDF
IMPORTANT LINKS
Agriculture Notes For UPSC Public Administration UPSC Notes Modern History Books For UPSC Overseas Citizen Of India Caste System & Panchayati Raj Godavari River Federalism Indira Point New Development Bank Battle Of Sinhagad Sankalp And Strive Schemes Digital India High Yielding Varieties Economic Growth Development League Of Nations Ease Of Doing Business Mid Day Meal Scheme Wildlife Protection Act 1972 UPSC Notes International Union Conservation Nature

The Reserve Bank of India is the central banking organization that takes charge of monetary and financial system-related activities within the country. It was established under the Reserve Bank of India Act, 1934 during the British Raj. It is responsible for the issue and management of currency, and also happens to be a banker to the government and exercises control over credit. One of the key factors of this institution is to know what are the 'Types of Bills' it deals with in the process of carrying out its monetary operations. The concept of Types of Bills plays a very crucial role in the working course of the RBI, especially within the framework of monetary policy.

This topic falls under the General Studies Paper III (GS-III) of UPSC Civil Services Examination, under Indian Economy.

GS Paper

General Studies Paper III

Topics for UPSC Prelims

Repo rate, Reverse Repo rate, Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Monetary Policy Committee (MPC), Banking Regulation Act 1949, Non-Banking Financial Companies (NBFCs), Government Securities (G-Secs), Open Market Operations (OMO), Foreign Exchange Management Act 1999 (FEMA), foreign exchange reserves, Pradhan Mantri Jan Dhan Yojana

Topics for UPSC Mains

Functions of RBI, Monetary Policy and Economic Growth, Unified Payments Interface (UPI), Bharat Bill Payment System (BBPS), Payment Banks, Measures taken by RBI to maintain financial stability in the economy, Measures taken to curb Non-Performing Assets (NPAs), Basel III norms, Prompt Corrective Action (PCA) framework

About Reserve Bank of India (RBI)

The Reserve Bank of India is the topmost body in the Indian financial system. It is the central authority for banking and is concerned with currency and monetary policy. The RBI was established on April 1, 1935, under the Reserve Bank of India Act, 1934. Its basic role is to regulate the issuance and supply of the Indian Rupee apart from monitoring the working of the banking system in India. Of the various important aspects with respect to the functioning of the RBI, the most important one is about dealing with 'Kinds of Bills' like Treasury Bills, Commercial Bills, etc. besides other negotiable instruments. Knowing these different types of bills is quite important, as they form the bedrock for the financial and monetary policies of the RBI.

Formation of Reserve Bank of India (RBI)

The recommendations of the Hilton Young Commission, which the British Government set up in 1926 to review India's currency and credit systems, led to the establishment of the RBI. Its first headquarters was in Kolkata, but the RBI shifted its operations to Mumbai in 1937. The major purposes behind the establishment of the RBI were to regulate the issue of currency, maintain reserves with a view to ensuring monetary stability, and to perform modern central banking functions that would help in the economic development of the country.

Nationalization of Reserve Bank of India (RBI)

It was nationalized from a privately-owned to state-owned institution on January 1, 1949. This was very significant for independent India because it directly gave the government control over the fiscal and monetary policy of the country. The nationalization was aimed at aligning the financial interests of the country with the national priorities and giving the government a robust tool to give impetus to economic growth and stability.

Read the article on the Ease 2.0 Banking Reforms Index!

FREEMentorship Program by
Ravi Kapoor, Ex-IRS
UPSC Exam-Hacker, Author, Super Mentor, MA
100+ Success Stories
Key Highlights
Achieve your Goal with our mentorship program, offering regular guidance and effective exam strategies.
Cultivate a focused mindset for exam success through our mentorship program.
2 Lakh+ Students Mentored Get
Get Free Mentorship Now
UPSC Beginners Program

Get UPSC Beginners Program SuperCoaching @ just

₹50000

Claim for free
Want to know more about this pass ?
Explore SuperCoaching

Structure of Reserve Bank of India (RBI)

The structure of RBI has been specifically designed for efficient governance and operational management.

The central board of directors, constituted by the government, governs the RBI. It is composed of the Governor, who is the chief executive of the bank; four Deputy Governors; two representatives from the government from the Ministry of Finance; ten government-nominated directors coming from various fields; and four directors appointed by regional boards.

The nerve center of the RBI's operations is the central office located in Mumbai. Supplementing the functions through 31 regional offices across India, it has ensured a vast reach of regulatory oversight.

Read the article on the Digital banking units!

Main Functions of Reserve Bank of India (RBI)

The RBI carries out many important functions that can be basically classified into:

Monetary Functions of RBI

The monetary functions of the RBI are of great importance with regard to maintaining the economic and financial stability of the nation. Some of its monetary functions include:

  • Repo rate and reverse repo rate: The former is what the banks charge for borrowing from the RBI, while the latter is what RBI pays when it borrows from banks. These rates form the essentials in the control of inflation and regulation of liquidity.
  • Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR): The former is a percentage of a bank's total deposit which it is supposed to maintain with the RBI in the form of liquid cash. SLR stands for that percentage of net demand and time liabilities to be maintained by any commercial bank in the form of cash, gold, or any other government-approved security.
  • Open Market Operations (OMOs): These refer to buying and selling of government securities in the open market for controlling banking-system liquidity.

General Functions of RBI

Besides its principal monetary functions, the RBI discharges a number of general functions, as well:

  • Currency Issuer: It is the exclusive preserve of the RBI for issuing bank notes in this country. This role is of vital importance in managing money supply and maintenance of liquidity in the economy.
  • Financial System Regulator: Broad parameters for the banking and financial system in this country get stipulated by the RBI. Ensuring that the system runs well in an orderly way, stability is brought.
  • Manager of Foreign Exchange: The country's foreign exchange is managed by the RBI under the Foreign Exchange Management Act, 1999. It facilitates external trade and payments for promoting orderly development and maintenance of foreign exchange market.
  • Developmental Role: The various promotional and developmental functions are performed by the RBI all of which are aimed at strengthening the financial infrastructure of the country.
  • Payment Settlement Systems: Ensuring that the payment and settlement systems operate efficiently, safely, as well as inclusively.

Read the article on the Domestic systemically important banks!

Publications of RBI

The RBI publishes various reports and periodicals that give an insight into its policies and economic environment. Some of the major publications are as follows:

  • Annual Report: This gives the full view of the bank's activities and operations and economic overview of the fiscal year.
  • Financial Stability Report (FSR): This report examines the risks to financial stability and the resilience of the financial system.
  • Monetary Policy Report (MPR): The report presents the monetary policy stance, economic conditions, and inflation forecasts.
  • Handbook of Statistics on Indian Economy: It contains historical statistics relating to a number of economic indicators, over the years.

Read the article on Surplus liquidity in the banking system!

RBI Surplus Transfer

One of the more significant fiscal administration exercises is the transfer of the surplus from the RBI to the government, mandated by the economic and fiscal policies of the nation. At the end of every year, after meeting its expenditure and making a few provisions against contingencies, the residual amount is transferred by the RBI to the government.

Government’s Stand on Transfer of Surplus

The Government of India looks upon this surplus transfer as one of the valuable sources of revenue for financing its fiscal deficit and other public spending. Many a time, it utilises such funds for building up infrastructural projects, social welfare schemes, and other developmental priorities.

RBI's Stand on Surplus Transfer

The proper balance is struck by the RBI between transferring the surplus to the government without compromising on its operational and various other needs. The RBI has been building an adequate reserve to address impending financial crises, currency volatility, or such other exigencies that might arise in the future.

Advantages of Surplus Transfer

Surplus transfer entails the reallocation of excess funds or resources, offering numerous benefits. Some key advantages include:

  • Funds Government Programs: Surplus transfer funds government projects and social welfare schemes.
  • Reduces Fiscal Deficit: It can help the government at least in part to contain the fiscal deficit by providing an additional revenue stream.
  • Supports Economic Planning: The transferred surplus can support economic planning and development initiatives.

Disadvantages of Surplus Transfer

While surplus transfer can be beneficial, it also presents certain challenges. Some notable disadvantages include:

  • Depletes RBI Reserves: Too high a transfer can erode the financial buffer of RBI, thereby undermining its capacity to address economic distress.
  • Fiscal Dependence: Over-reliance on RBI surplus can dissuade the government from exploring other sources of revenue.
  • Inflationary Pressures: Proceeds from surplus can result in increased government expenditure, which fuels inflationary pressures.

Read the article on wholesale banking!

Autonomy of Reserve Bank of India (RBI)

The autonomy of RBI goes hand in glove with its effective functioning and achievement of the goals and objectives. The central bank is independent, designing monetary policies based on economic conditions and data. Such autonomy will enable the RBI to adopt the measures that are essential for economic stability without the direct interference of the political entities. However, the policies framed by the RBI are always synchronized with the general economic objectives of the country.

Key Takeaways for UPSC Aspirants

  • Establishment and Objectives: The Reserve Bank of India (RBI) was established in 1935 to regulate issue of banknotes, maintain reserves, and operate the credit and currency system.
  • Monetary Authority: The RBI controls the monetary policy of India to ensure price stability and economic growth by regulating interest rates and money supply.
  • Regulator of Financial System: It supervises and regulates banks and non-banking financial companies to maintain public confidence in the financial system.
  • Issuer of Currency: The RBI is the sole issuer of currency notes in India, ensuring adequate supply and integrity of the currency.
  • Manager of Foreign Exchange: It manages the Foreign Exchange Management Act, 1999 (FEMA) and ensures stability in the foreign exchange market.
  • Developmental Role: The RBI undertakes initiatives to promote banking development and financial inclusion, particularly for rural and underserved populations.
  • Banker to Government: It acts as the banker and financial advisor to the government, managing its accounts, debt, and treasury operations.
  • Consumer Protection: The RBI safeguards consumer rights by issuing guidelines and regulations for fair practices and redressal mechanisms in the banking sector.

We hope your doubts regarding the topic have been addressed after going through the above article. Testbook offers good quality preparation material for different competitive examinations. Succeed in your UPSC IAS exam preparations by downloading the Testbook App here!

More Articles for IAS Preparation

RBI UPSC FAQs

The RBI is India's central banking institution, which controls the issuance and supply of the Indian rupee and aims to maintain monetary stability, regulate the financial system, manage foreign exchange, and serve as the banker to the government.

The Reserve Bank of India was established on April 1, 1935, in accordance with the Reserve Bank of India Act, 1934.

The primary functions include regulating monetary policy, issuing currency, managing foreign exchange, overseeing financial institutions, acting as the banker to the government, and ensuring financial stability.

The RBI uses various instruments like repo rate, reverse repo rate, the cash reserve ratio (CRR), statutory liquidity ratio (SLR), and open market operations (OMO) to control the monetary supply and interest rates in the economy.

The RBI manages the Foreign Exchange Management Act, 1999 (FEMA), regulates the foreign exchange market, and maintains India's foreign exchange reserves to ensure balance of payments stability.

The RBI oversees the functioning of scheduled and commercial banks, formulates guidelines for bank operations, conducts inspections, and ensures adherence to regulatory norms to maintain public confidence.

The RBI provides essential banking services to the government, acts as the banker to scheduled banks by maintaining their cash reserves, and facilitates smooth interbank transactions.
Report An Error
Exams Tests Super Practice