Page 33 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes Thus, as a supreme banking authority in the country, the Reserve Bank of India, therefore, has
the following powers:
1. It holds the cash reserves of all the scheduled banks.

2. It controls the credit operations of banks through quantitative and qualitative controls.
3. It controls the banking system through the system of licensing, inspection and calling for
information.

4. It acts as the lender of the last resort by providing rediscount facilities to scheduled banks.
5. Controller of Forex reserves of the country.
In addition to its traditional central banking functions, the Reserve bank has certain non-monetary
functions of the nature of supervision of banks and promotion of sound banking in India.

Did u know? According to the Banking Regulation Act of 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.
2.4.2 Supervisory Functions (Non-monetary Functions)

1. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide
powers.

2. RBI has to supervise and control commercial and cooperative banks in relation to licensing
and establishments, branch expansion, liquidity of their assets, management and methods
of working, amalgamation, reconstruction, and liquidation.

3. The RBI is authorized to carry out periodical inspections of the banks and to call for
returns and necessary information from them.
4. The nationalization of 14 major Indian scheduled banks in July 1969 imposed new
responsibilities on the RBI for directing the growth of banking and credit policies towards
more rapid development of the economy and realisation of certain desired social objectives.
The supervisory functions of the RBI have helped a great deal in improving the standard of
banking in India to develop on sound lines and to improve the methods of their operation.

2.4.3 Promotional Functions (Non-monetary Functions)

Since independence, with economic growth, the range of the Reserve Bank’s functions has steadily
widened. The Bank now performs a variety of developmental and promotional functions, which,
at one time, were regarded as outside the normal scope of central banking.

1. The Reserve Bank promotes banking habits
2. Extends banking facilities to rural and semi-urban areas
3. Establishes and promotes new specialised financing agencies i.e., Industrial Development
Banks
4. Development of the cooperative credit movement to encourage savings and to eliminate
moneylenders from the villages and to route its short-term credit to agriculture e.g.
Agricultural Refinance and Development Corporation to provide long-term finance to
farmers.

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