How does RBI control the function of other banks?

Answer 1

The Reserve Bank of India (RBI) controls the money supply through the Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), and through bank rates. RBI uses these tools to increase or decrease the money supply.

Answer 2

Inflation arises when the demand increases and there is a shortage of supply. So if government is able to reduce the money in the hands of the people, it will be able to reduce the demand, as the purchasing pwer of the people will reduce.

There are two policies in the hands of the RBI

1. Monetary Policy: It includes the interest rates. When the bank increases the interest rates there is reduction in the borrowers and people try to save more as the rate of interest has increased.

2. Fiscal Policy: It is related to direct taxes and government spending. When direct taxes are increased and government spending is increased, the disposable income of the people reduces and hence the demand reduces.

Answer 3

Reserve Bank of India was established on 1st April 1935 through the Reserve Bank of India Act, 1934, when the British Ruled India. It is the central bank of India that governs the operations of all banks in the country. It was created to help reduce the economic troubles in India after the first world war.

Reserve Bank of India supervises/oversees the banking operations of all banks in India. They are responsible for the proper functioning of all the banks and they are also the lender to the banks (The place where banks go to borrow money if they are short of funds). They also decide the lending and deposit rates for all banks in the country.