Functions of the Central Bank of India are : 

(i) Issue of Currency Notes : The central bank has monopoly over issuing currency notes in the country. In order to inspire public confidence in paper currency, the central bank keeps reserves of gold, silver, etc., for issuing currency notes. Central bank is given monopoly of note issue in order to maintain uniformity in currency, to avoid over-issue and to lend prestige to the currency system. 

(ii) Banker to the Government : The central bank acts as a banker, agent and advisor to the Government. As a banker, it receives and makes payments on behalf of the Government. The central bank serves as the Government’s agent in financial matters. It advises the Government in matters relating to monetary and banking policies. It manages the national debt and issue of Government securities. It also represents the Government in international conferences on monetary and banking matters. 

(iii) Banker’s Bank : The central bank acts as the bank for all commercial banks in the country. When a commercial bank needs funds it can obtain loans and re discount its bills with the central bank. Therefore, central bank is called ‘Lender of last resort’. Commercial banks are required to keep a cash reserve with the central bank so as to control credit in the country. The central bank advises commercial banks on matters relating to their business. 

(iv) Credit Control : The central bank exercises both qualitative and quantitative control over credit granting capacity of commercial banks in order to maintain stability in prices and foreign exchange. In the absence of such control, commercial banks may lend too much or too little. They may lend to wrong parties or for unproductive purposes. They may also charge very high rates of interest. 

(v) Custodian of Foreign Currency Reserves : The central bank is the sole custodian of gold, foreign exchange and all other reserves of the country. It manages these reserves judiciously so as to overcome difficulties in balance of payments and to stabilise the exchange rates. 

(vi) Maintenance of Exchange Rate : The central bank monitors the exchange rate of the home currency in relation to foreign currencies. It tries to maintain stability in the exchange rate in order to promote the country’s foreign trade and to encourage the flow of foreign investment. The central bank buys and sells foreign currencies in order to maintain a stable exchange rate.