Question

in what ways did the RBI supervises the functioning of banks ? why is this necessary.

Answer 1

• The Reserve Bank of India supervises the functioning of formal sources of loans.
• The banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors that the banks actually maintain the cash balance.
• Similarly the RBI sees that the banks give loans not just to profit-making businesses and traders but also to small cultivators, small scale industries, to small borrowers etc.
• Periodically, 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 prevent the exploitation of the debtors or any kind of mismanagement by the banks.