RBI - Functions & Role

This is a critical central banking function. When a commercial bank faces a sudden shortage of cash (liquidity crisis) and cannot borrow from other banks, it turns to the RBI. The RBI provides funds to ensure the bank does not fail. This protects the savings of common people and prevents a panic in the entire financial system. Example: If Bank X has no cash to pay depositors, RBI steps in with a temporary loan.

The RBI manages the accounts of both the Central Government and State Governments. It handles their receipts and payments. It also manages 'Public Debt,' which means it helps the government borrow money from the public by issuing bonds. It provides short-term credit to the government through a mechanism called Ways and Means Advances (WMA). Example: When the government needs funds for a new highway, RBI helps manage the bond auction.

The MPC is a 6-member committee responsible for fixing the benchmark interest rate (Repo Rate). It consists of the RBI Governor, a Deputy Governor, one RBI officer, and three external members appointed by the Government. They meet at least four times a year. Their main goal is to keep inflation at 4% (with a margin of +/- 2%). Example: If prices are rising too fast, the MPC may increase interest rates to reduce money supply.