All you need to know about the roles and responsibilities of RBI

Mumbai: RBI Governor Urjit Patel unexpectedly resigned Monday, bringing into prominence the role played by the central bank in the country's economy. Following is an explainer on the functions and responsibilities of the RBI:

Early days

The RBI was established on April 1, 1935. The Central Office of the bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the governor sits and where policies are formulated. Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the government of India.

Role of Reserve Bank of India

The central bank issues and regulates currency notes. It keeps reserves with a view to securing monetary stability and is called banker to banks. It regulates and supervise banks and other financial institutions. The RBI plays a vital role in economic growth of the country and maintaining price stability.

Monetary Policy of the country

The RBI has been tasked to have a modern monetary policy framework to meet the challenges of an increasingly complex economy and to maintain price stability while keeping in mind the objective of growth.

Inflation control

The RBI has been entrusted to keep the mid-term inflation at 4 four per cent (+/- 2 per cent). The RBI decides benchmark monetary rates in keeping with this target.

A six-member Monetary Policy Committee, headed by RBI governor, decides the benchmark repo rate through voting that acts as a guide for banks to set interest rates for lending and deposit. In case of a tie, the governor has the casting vote. Earlier, the RBI governor used to decide the interest rate in consultation with Technical Advisory Committee (TAC) consisting of RBI officials and external experts.

Announces benchmark interest rate every two months

The MPC meets every two months for 2-3 days and the decision of the committee on monetary policy is announced at the end of the meeting on the RBI's website. It has been a practice that the RBI governor along with deputy governors holds a press conference after the MPC meeting.

Financial literacy

The central bank plays a key role in creating financial awareness among the masses through various medium, including television.

It also supervises if the banks and other financial institutions are doing the job assigned to them regarding financial inclusion.

Government's banker

RBI acts as a banker for both the central as well as state governments. It sells and purchase government securities on their behalf. It also manages liquidity in the system.

Key appointments

Appointments Committee of the Cabinet headed by the prime minister appoints the governor and deputy governors.

RBI's autonomy

The RBI enjoys functional autonomy. However, the RBI Act empowers the government to issue directions to the governor in public interest (Section 7 of the Act).