Lender of last resort
The Indian financial system comprises banks, Non-Banking Financial Company (NBFCs), insurance companies, mutual funds, financial markets, and others. RBI regulates commercial banks, cooperative banks, and certain NBFCs registered with it. The central bank monitors systemic risk on an ongoing basis via tools like stress tests at the micro and macro levels, analysis of interconnectedness among various financial market entities and sectors, use of indicators like the banking stability indicator, systemic liquidity indicator, credit-GDP growth trends, and others.
As a banking regulator, the RBI prescribes broad parameters of banking operations within which the banking and financial system functions, besides maintaining public confidence and protecting depositors’ interests.
Custodian of currency
Another key role of the RBI is currency management. It determines the volume and value of banknotes to be printed in a year in consultation with the Union government. RBI estimates the quantum using statistical models and considers factors such as growth in GDP, inflation, interest rates, growth of digital payments, and others. Currency is printed at four currency presses, two of which are owned by the Government of India and two by the RBI itself.
As for distribution, the RBI has authorised select scheduled banks to set up currency chests, which are storehouses of banknotes and coins. As of March 2024, there are 2,794 currency chests spread across the country.
