Central Bank: The Central Bank is an institution which is charged with the responsibility of managing the expansion and contraction of the volume of money in the interest of general public welfare. This is the apex bank in the banking system of any country normally assigned with the responsibility of issuing notes and also with the supervision of the banking system. 

Functions of the Reserve Bank of India: 

In India, the Central Bank, the Reserve Bank of India performs the following functions:

• Central Banking Functions, 
• General Banking Functions.

Central Banking Functions: 

1. Issue of Notes: The Reserve Bank of India has been given the monopoly of the issue of banknotes from 1st April 1935. The bank has the power to issue notes of Rs. 2, Rs. 5, Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 500 and Rs. 1,000. Notes of Re. 1 are issued by the Government of India. The Re. 1 notes are issued as a subsidiary to Re. 1 coins.

2. Banker’s Bank: Reserve Bank is called banker’s bank because it provides services and facilities to other banks in a similar manner as a commercial bank provides services and facilities to the general public. The banks which are affiliated to the Reserve Bank may get a loan from it at the time of need. It re- discounts their bills and provides help at the time of need.

3. Government’s Banker: The Reserve Bank also acts as a banker to the central and State Governments by keeping their money. It also carries out their exchange remittance and other banking operations, besides managing public debt. The bank also transfers the reserve from one place to another, makes payments according to the instructions provided by the Government and accepts deposits on their behalf. The bank also engages itself in floating loan treasury bills on behalf of the Central and State Governments.

4. Sale and Purchase of Foreign Exchange: Sale and purchase of foreign exchange is very important function of the Reserve Bank whereby it assists in the smooth flow of foreign trade.

5. Credit Control: Monetary system of the country is stabilised through credit control which is very essential for the prosperity of the trade and industry of the country. The Reserve Bank expands and contracts credit according to the need of the country.

6. Clearing House Facility: The Reserve Bank acts as Clearing House for commercial banks. Transactions of member banks are settled through this facility of the clearinghouse. All the banks maintain their accounts with the Reserve Bank. These banks do not pay off their liabilities in cash. All the claims and counterclaims are settled with the minimum use of cash. The representatives of various banks meet each other every day at Clearing House and exchange their credit documents to settle their accounts.

General Banking Functions: 

1. The Reserve Bank of India accepts deposits from the Government of India and the State Governments but it pays no interest on such deposits. 

2. The Reserve Bank of India re-discounts the commercial bills and promissory notes tendered by the Scheduled Banks. 

3. The bank gives loans to its member banks for a maximum period of 90 days.

4. The Reserve Bank of India can borrow from any Scheduled Bank or Foreign Bank for a period not exceeding 30 days. 

5. The Reserve Bank of India can buy and sell securities of Central and State Governments. 

6. The Reserve Bank of India can keep in custody gold, silver, diamonds and other securities etc. for safety purposes. 

7. The bank can open its account with Central Bank of other countries or with International Bank. 

8. The Reserve Bank of India arranges for Industrial Finance.

9. The Reserve Bank of India controls credit in the country.

10. The Reserve Bank of India can borrow from the Central Government or State Governments for a period not exceeding 90 days.