(a) Explain any three functions of the Reserve Bank of India.

(i) The RBI issues currency notes on behalf of the central govt.

(ii) It supervises the functioning of formal sources of loans.

(iii) The RBI monitors the banks to maintain the cash balance.

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

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

(b) Explain the role of banks with regard to money which they accept from the public.

(i)Banks accept the deposits and pay an amount as interest on the deposits.

(ii) Banks keep only a small proportion of their deposits as cash with themselves — $\displaystyle 15$ per cent

(iii) This is kept as provision to pay the depositors who might come to withdraw money from the bank on any given day.

(iv) Banks use the major portion of the deposits to extend loans.

(v) Banks make use of the deposits to meet the loan requirements of the people.

(vi) In this way, banks mediate between those who have surplus funds (the depositors) and those who need these funds (the borrowers).

(vii)Banks charge a higher interest rate on loans than what they offer on deposits.

(viii)The difference between what is charged from borrowers and what is paid to depositors is their main source of income.