The functions of the central bank of India :
(a) Issue of Currency Notes : The central bank has monopoly over issuing currency notes in the country. In order to inspire public confidence in paper currency, the central blank keeps reserves of gold, silver, etc., for issuing currency notes.
(b) Banker to the Government : The central bank acts as a banker, agent and advisor to the Government. As a banker, it receives and makes payments on behalf of the government. The central bank serves as the Government's agent in financial matters. It advises the government in matters relating to monetary and banking policies. It manages the national debt and issue of government securities. It also represents the government in international conferences on monetary and banking matters.
(c) Banker's Bank : The central bank acts as the bank for all commercial banks in the country. When a commercial bank needs funds it can obtain loans and rediscount its bills with the central bank. Commercial banks are required to keep a cash reserve with the central bank so as to control credit in the country. The central bank advises commercial banks on matters relating to their business.
(d) Lender of the last resort : The central bank helps commercial banks in time of emergency. Sometimes, a large number of depositors want to withdraw their deposits from a commercial bank at the same time. Under such circumstances, the commercial bank, will have to borrow from other banks. But the other banks, due to some difficulty, may not be able to help the bank in trouble. At this time, the central bank is the lender of the last resort. The central bank helps commercial banks either by granting loans or by buying their securities.
(e) Credit Control : The central bank exercises both qualitative and quantitative control over credit granting capacity of commerical banks in order to maintain stability in prices and foreign exchange. In the absence of such control, commerical banks may lend too much or too little. They may lend to wrong parties or for unproductive purposes. They may also charge very high rates of interest.
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