Chapter 1 Class 8 Economics - Introduction to Banks

What is the role of the RBI in the Indian banking system?



Answer by Student

The RBI is the central bank of India, which means it is the bank of banks. It has many important roles, such as:

  • Supervising and regulating all other banks - The RBI oversees and governs the banking system and financial markets in India. It ensures that banks comply with the rules and guidelines set by it and also protects the interests of the customers and depositors.

  • Controlling the money supply and interest rates - The RBI controls the amount of money available in the economy and the cost of borrowing and lending money. It does this by using various tools, such as repo rate, CRR, SLR, etc. It also issues currency notes and coins in India.

  • Lending money to banks in case of emergency - The RBI acts as a lender of last resort to banks and other financial institutions when they face a shortage of funds or a crisis. It lends money to them at a certain interest rate, called the repo rate, to help them meet their obligations and maintain liquidity.

Thus, the role of the RBI in the Indian banking system is to ensure its stability, efficiency, and growth.

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