In what ways does the Reserve Bank of India supervise the functions of Banks? Why is this necessary?
The Reserve Bank of India supervises the functions of banks in a number of ways:
→ The commercial banks are required to hold part of their cash reserves with their RBI. RBI ensures that the banks maintain a minimum cash balance out of the deposits they receive.
→ RBI observes that the banks give loans not just to profit making businesses and traders but also to small cultivators, small scale industries, small borrowers etc.
→ The commercial banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate etc.
This is necessary to ensure equality in the economy of the country and protect especially small depositors, farmers, small scale industries, small borrowers etc. In this process RBI also acts as the lender of the last resort to the banks.
