Question

what way does the reserve bank of india supervise the functions of bank ? why is this necessary

Answer 1

RBI supervises the Indian banks in the following manner:

(i) The Commercial banks are required to maintain a minimum cash balance out of the deposits they receive.

(ii) The RBI monitors that the banks actually maintain the cash balance.

(iii) The RBI sees that the banks give loan not just to profit-making businesses and traders but also to small cultivators, small-scale industries, small borrowers, etc.

(iv) Periodically, banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate, etc.

(V) RBI fixes the rate of interest which is accepted by all the banks in the country-commercial and national banks. it also controls the flow of currency in the economy to maintain the stability of the currency.
it demands a periodic report from all the banks pertaining to their lending and saving activities.

This supervision is necessary to ensure that equality is preserved in business and industry so that small industries also grow. Also, RBI makes sure that banks do not loan out more money than they are supposed to, as this can lead to crisis situations. An example is the great depression of the 1930s, as it affected the world economy.

Answer 2

RBI supervises the functioning of formal sources of loan .
It authorizes the currency of India.