Finance is the backbone of the economy. Finance simply means income and expenditure. Financial system prevalent in the country is responsible for the mobilization and allocation of funds. The financial system of the nation plays an important role in creation of wealth and economic development of the country.

According to Hugh Dalton: “Public finance is one of those subjects which are on the border line between economics and politics. It is concerned with the income and expenditure of public authorities and with the adjustment of one with the other”.

According to prof. Findlay Shirras: “ Public finance is the study of the principles underlying the spending and raising of funds by public authorities”.

The RBI:

The RBI stands for ‘The Reserve Bank of India’.

The Reserve Bank of India comes under the organised sector. RBI is the Central Bank of India and the apex financial institution. Every country in the world has a central bank.

The RBI acts as a regulator and supervisor of the entire financial system prevalent across the nation.

The RBI was established on April 1, 1935 in Kolkata.

The Reserve Bank of India was set up on the basis of the recommendations of the Hilton young commission. The RBI act of 1934 provides the statutory basis of the functions of the bank. RBI commenced its operations on 1st April, 1935 as a private shareholders’ Bank.

RBI was nationalised on first January 1949.

Dr. M. H. de Kock: “Central bank is one which constitutes the apex of the monetary and banking structure of the country.”

Prof. W. A. Shaw: “Central bank is a bank which controls credit.”

SBI works as RBI's agent at places where the RBI does not have an office of its own.

Governor of RBI:

The first governor of RBI is Osbourne Smith (1935-1937).

The second governor of RBI is Sir James Taylor (1937-1943).

The first Indian governor of RBI is Sir C.D. Deshmukh (1943-1949).

The longest tenure to be held by RBI governor is Sir Benegal Rama Rao (1949-1957).

The shortest tenure to be held by RBI governor is Amitav Ghosh (15 Jan 1985 – 4 Feb 1985).

Dr Manmohan Singh is the only Prime minister to have served as the governor of RBI (1982-1985).

The first IITian to join as the RBI governor was D Subbarao (2008-2013).

The 23rd RBI governor is Raghuram Rajan (2013-2016).

The 24th RBI governor is doctor Urjit R Patel, he was in his term when the state of demonetisation of the currency was declared (2016-2018).

The 25th RBI governor is Shaktikant Das (2018- till date).

Functions of the Reserve Bank of India:

Issuing Currency Notes: The RBI possesses the sole right to issue currency notes of all denominations except one rupee note and coins. One rupee notes are printed by the Government of India and signed by the Finance Secretary. Similarly, all the coins are printed by the Government of India and signed by none, which are further circulated by RBI to the commercial banks. The currency is injected in the market through RBI.

Banker to the Government: The RBI is a banker and advisor to the government. It transacts the businesses and makes the relevant payments on behalf of government. It acts as an advisor to the government on a wide range of economic activities.

Lender of the Last Resort: The RBI acts as a banker’s bank and exercises statutory control over the commercial banks. All the scheduled banks are under a strict obligation to maintain a certain amount of cash reserves with the Reserve Bank of India in proportion to their demand and liabilities. The RBI gives financial assistance to banks in the form of discounting of bills, loans and advances against approved securities. It provides liquidity to banks experiencing financial constraints.

Online Platform: E-Kuber is the Core Banking Solution of Reserve Bank of India. It has the the provision of a single current account for each bank across the nation, with decentralised access to this account from anywhere-anytime using portal based services. This platform is used to regulate the commercial banks across the country.

Custodian of Foreign Exchange Reserves: Reserve Bank of India Act as a custodian of the country’s foreign exchange reserves. It has two maintain the rate of exchange of the currency (Rs) and ensure its stability.

Credit control: The RBI is responsible to regulate the money supply prevalent within the economy. As the apex banking institution of the country the RBI has the power to influence the volume of credit created by the banking system.

Data Collection: The RBI collects and utilises statistical information related to the banking sector and other financial sectors to analyse and take various integral decisions relating to the financial plan of the economy.

Financial Involvement: RBI has provisions to open no frill accounts by providing access to banking facilities at zero balance or nominal rates. The no frill accounts are such that, which are opened and maintained without the requirement of any minimum balance.

Development Activities: The Reserve Bank of India, from time to time, undertakes various development activities like priority sector lending (PSL) and disbursement of agricultural loans.The foreign banks and commercial banks are under an obligation by RBI to approve a certain predefined percentage of loans to the priority sector.

Supervision: The RBI supervisors various financial transactions taking place under the Payment And Settlement System Act, 2007.

Support: RBI has established the Reserve Bank Innovation Hub (RBIH) in Bengaluru which primarily focuses on strengthening and promoting the access to financial services for the low income population of the nation.

Sources of Income:

• By rendering various financial services.
• Supervises and regulates the working of the entire financial machinery.
• Keeps a check on the inflation rates prevalent, and the borrowing of the country.
• Interest income by investment in bonds, government securities and by lending to commercial banks.