Question

Elaborate the 'Banker's Bank and Supervisor' function of the Reserve Bank of India.

Answer 1

The Reserve Bank of India (RBI) is the country's central bank. It is also the "banker's bank" and a supervisor or regulator of the banking industry. 

1. Banker's Bank Function: The RBI serves other banks nationwide by offering necessary banking services as a banker's bank. This position includes several essential duties: 
   1. Clearing and Settlement: To guarantee efficient cash transfers between banks, the RBI helps clear and settle interbank transactions. It runs the National Electronic Funds Transfer (NEFT) and Real-Time Gross Settlement (RTGS) systems, enabling banks to settle retail and large-value payments.
   2. Lender of Last Resort: Banks may turn to the RBI for short-term funding to fulfil their responsibilities during periods of low liquidity. To keep the banking system stable, the RBI serves as a lender of last resort by providing emergency liquidity support to banks experiencing liquidity issues.
   3. Custodian of Cash Reserves: Commercial banks must keep a specific proportion of their deposits with the RBL in cash reserves. These reserves help regulate the money in the economy and act as a buffer against bank collapses. The RBI oversees these cash reserves and ensures that reserve requirements are met.
2. Supervisor/Regulator Function: The RBI acts as a supervisor or regulator, monitoring bank and financial institution operations to preserve financial stability and safeguard the public's and depositors' interests.