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Home › Exam notes › IBPS Banking › RBI Functions

RBI Functions

Banking / Economy Awareness · Banking System & RBI

Useful for: IBPS Banking

Overview

The Reserve Bank of India is the central bank: monetary authority, currency issuer, banker to the government and to banks, and regulator of banks and payments.

Key points

  • Established on 1 April 1935 under the RBI Act, 1934; nationalised on 1 January 1949; headquarters in Mumbai (moved from Kolkata in 1937).
  • Issues all currency notes except the ₹1 note, which (with coins) is issued by the Government of India.
  • Banker to the government and banker’s bank; lender of last resort.
  • Regulates and supervises banks and NBFCs; manages foreign exchange under FEMA, 1999.
  • Regulates and oversees payment and settlement systems.

Explanation

  • The Governor is appointed by the Central Government.
  • Monetary policy is decided by the Monetary Policy Committee (MPC).
  • Currency management includes printing, distribution and withdrawal of notes.
  • Deposit insurance is handled by DICGC, a wholly owned RBI subsidiary.

Step by step

  1. Identify the institution, rule or instrument asked.
  2. Recall its definition, year, limit or function from a table.
  3. Eliminate options from similar institutions or older rules.

Examples

  • The ₹1 note is issued by → the Government of India (Ministry of Finance).
  • The RBI was nationalised in → 1949.
  • The law under which RBI manages foreign exchange → FEMA, 1999.

Traps and advanced points

  • Trap: Saying RBI issues the ₹1 note.
  • Trap: Dating RBI’s nationalisation to 1935.
  • Trap: Thinking RBI regulates insurance (that is IRDAI).

Quick revision

  • 1 April 1935; 1949; Mumbai.
  • ₹1 note and coins by GoI.
  • Banker’s bank, lender of last resort.

Practice MCQs

  1. Which term-description pair is correctly matched for the concept “SLR”?

    1. SLR — Statutory Liquidity Ratio
    2. SLR — a rate associated with RBI lending/rediscounting framework
    3. SLR — National Electronic Funds Transfer
    4. SLR — rate at which RBI lends short-term funds against eligible collateral under the liquidity framework

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    Answer: (a) SLR — Statutory Liquidity Ratio. Required share of NDTL maintained in specified liquid assets under applicable rules.

  2. Which banking/finance term is best described as: External Benchmark Linked Rate?

    1. letter of credit
    2. deflation
    3. credit risk
    4. EBLR

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    Answer: (d) EBLR. Loan pricing linked to an external benchmark for applicable categories.

  3. Which term-description pair is correctly matched for the concept “reverse repo / liquidity absorption operations”?

    1. reverse repo / liquidity absorption operations — National Electronic Funds Transfer
    2. MICR — mechanisms used to absorb surplus liquidity from the banking system
    3. reverse repo / liquidity absorption operations — Know Your Customer
    4. reverse repo / liquidity absorption operations — mechanisms used to absorb surplus liquidity from the banking system

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    Answer: (d) reverse repo / liquidity absorption operations — mechanisms used to absorb surplus liquidity from the banking system. Operational frameworks can evolve; learn the current RBI liquidity framework near the exam.

  4. Which banking/finance term is best described as: a rate associated with RBI lending/rediscounting framework?

    1. bank rate
    2. moratorium
    3. repo rate
    4. SIDBI

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    Answer: (a) bank rate. Distinguish it from the policy repo rate.

  5. In banking/finance, what does “SLR” refer to most accurately?

    1. signing/instruction used to transfer or negotiate an instrument where legally applicable
    2. movement of cash and cash equivalents into/out of an entity
    3. ability to meet short-term obligations
    4. Statutory Liquidity Ratio

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    Answer: (d) Statutory Liquidity Ratio. Required share of NDTL maintained in specified liquid assets under applicable rules.

  6. In banking/finance, what does “CRR” refer to most accurately?

    1. movement of cash and cash equivalents into/out of an entity
    2. risk of losses from adverse market-price movements
    3. Equated Monthly Instalment
    4. Cash Reserve Ratio

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    Answer: (d) Cash Reserve Ratio. Share of bank NDTL maintained as cash balance with RBI, as prescribed.

  7. The RBI was established on —

    1. 26 January 1950
    2. 1 April 1935
    3. 1 January 1949
    4. 15 August 1947

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    Answer: (b) 1 April 1935. Under the RBI Act, 1934.

  8. The RBI was nationalised on —

    1. 19 July 1969
    2. 1 January 1950
    3. 1 April 1935
    4. 1 January 1949

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    Answer: (d) 1 January 1949. 1949.

  9. The RBI headquarters is in —

    1. Mumbai
    2. Kolkata
    3. Chennai
    4. New Delhi

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    Answer: (a) Mumbai. Mumbai.

  10. The ₹1 note is issued by —

    1. SEBI
    2. the RBI
    3. the Government of India
    4. SBI

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    Answer: (c) the Government of India. Government (with coins).

More topics in this chapter

Notes and questions are written by Kundali IQ for practice. They are not official papers; always check the latest official notification for the syllabus and pattern.