Functions of central bank – Developmental and Promotional functions

Besides the traditional functions performed by the central bank, the central bank especially in developing countries like India has to assist the Government in the development and promotion of the economy. Such functions include

a] to promote banking habits among the people

RBI exercises its power over commercial banks and puts them under pressure to open branches in rural areas. This has contributed a lot towards rural banking and to cultivate banking habits among the rural people.

b] Establishing special banking training institutions

Establishing special banking training institutions to train the banking personnel to undertake banking functions in the urban and rural areas.

c] Agricultural finance

The RBI maintains a Department of Agricultural Credit to provide credit facilities to agriculturalist.

RBI has created various agencies and institutions for the weaker sections under various schemes for rural development. The NABARD [national bank for agriculture and rural development] was set up in 1982 to promote rural and agricultural development.

d] Industrial finance

The central bank has taken several steps to meet the long term requirements of the industrial finance.

Financial institutions like the Industrial Development Bank of India [IDBI] to promote industrial development in India.

The Industrial Finance Corporation of India [IFCI], State Finance Corporation of India [SFC] play an important role in promoting industrial growth in India.

e] Export – Import Finance

The RBI has established the Export Import Bank [EXIM Bank]to finance the export and import activities.

f] Encouraging small savings

To provide opportunities of investment and better returns for small savers, the RBI established the Unit Trust of India [UTI] in 1963.

g] Provision of credit facilities to agriculture, industry and other priority sectors through commercial and co-operative banks.

h] Maintaining price stability in the country

i] Conducting research and surveys on various important aspects of the economy with a view to provide guidelines for development in different sectors of the economy. Such research and survey is useful to Government authorities to frame macroeconomic policies.

j] The central bank – RBJ gives clearance to various projects involving financial matters. This includes clearing joint ventures abroad and investment proposals in foreign countries.

Posted in General Economics