RBI's Functions and Structure

2.1 Monetary Authority Function

Formulating and implementing monetary policy to maintain price stability while keeping in mind the objective of growth. Since 2016, this function is discharged through the Monetary Policy Committee (MPC).

RBI's monetary policy tools:

• Repo Rate: Rate at which RBI lends overnight to banks against collateral (G-Secs). A cut reduces borrowing costs throughout the economy.
• Reverse Repo Rate (now SDF — Standing Deposit Facility): Rate at which banks park excess funds with RBI. SDF (introduced April 2022) replaced reverse repo as the floor rate.
• Cash Reserve Ratio (CRR): Fraction of total deposits banks must keep as cash with RBI — currently 4%. A CRR hike reduces lendable funds (contractionary).
• Statutory Liquidity Ratio (SLR): Fraction of deposits banks must maintain in liquid assets (G-Secs, cash, gold) — currently 18%.
• Open Market Operations (OMO): RBI buys G-Secs from banks (injects liquidity) or sells (absorbs liquidity). Used to manage long-term rates.
• Marginal Standing Facility (MSF): Emergency overnight borrowing for banks at MSF rate (above repo) — ceiling of interest rate corridor.
• Liquidity Adjustment Facility (LAF): Daily mechanism for banks to borrow (repo window) or lend (SDF window) to RBI — the primary liquidity management tool.

2.2 Regulatory and Supervisory Function

RBI regulates and supervises a broad spectrum of financial entities:

• Scheduled Commercial Banks (SCBs): 12 PSBs, 21 private banks, 45 foreign banks, 43 regional rural banks
• Small Finance Banks: 12 SFBs (AU, Equitas, Ujjivan, etc.) — serve underbanked segments
• Payments Banks: 7 payments banks (Airtel, Paytm [ceased], India Post, Fino, Jio, NSDL) — mobile-first, deposit-only (up to Rs 2 lakh), no lending
• NBFCs: 10,000+ Non-Banking Financial Companies; major ones (NBFCs-D, NBFCs-SI) under RBI regulation
• Urban Co-operative Banks: Multi-state UCBs regulated by RBI; state UCBs jointly with state government

RBI's supervisory tools include on-site inspection (Annual Financial Inspection — AFI), off-site surveillance (OSMOS), and the Prompt Corrective Action (PCA) framework for weak banks.

2.3 Government's Banker and Debt Manager

RBI maintains the government's accounts and manages the Consolidated Fund. It issues and manages government securities and provides Ways and Means Advances (WMA) for temporary shortfalls. RBI transferred a record Rs 2.11 lakh crore dividend to the government in FY2023-24, arising from valuation and forex gains.

2.4 Foreign Exchange Reserve Custodian

RBI manages India's foreign exchange reserves under FEMA 1999:

• Composition (Jan 2025): Foreign Currency Assets ($600 billion), Gold ($68 billion), SDR holdings ($18 billion), IMF Reserve Tranche
• Investment: Reserves held in safe, liquid assets — US Treasury Bills, AAA-rated sovereign bonds, and gold
• Adequacy: 11 months of import cover; IMF guideline is 3 months — India is comfortably above the benchmark

2.5 Currency Issue

RBI is the sole authority for issuing currency notes (Rs 2 and above) under the Minimum Reserve System (since 1957). The Government of India issues Rs 1 coins and notes. RBI maintains a minimum reserve of Rs 200 crore (Rs 115 crore in gold, Rs 85 crore in foreign securities) to issue notes.

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