1. Lecture: 3 Banking & Financial Institutions By
Dr. Nabonita Debnath, Assistant Professor,Deptt of Economics, Radhamadhab College, Silchar-06

2. Central Bank and its functions
Central banking is a recent phenomenon which came into existence in the late 19th and early 20th century. The first central bank was “Riks Bank of Sweden” in In India, the central bank is “Reserve Bank of India (RBI)” established in 1935.

3. Functions of Central Bank
Issuing currency or notes-The central bank has the sole authority to issue or print currency or note in almost all the countries of the world. For example, in India, all notes other than Re 1 are issued by RBI.

4. Banker, agent and advisor to the government : As a banker, central bank maintains the accounts of both central as well as state governments. It can also receive money from government and can also give loan to it whenever required. As an agent, the central bank can collect taxes for the government and can also provide loans to people on behalf of government. As an advisor, central bank can give advices on economic, monetary and other financial matters of the government.

5. Banker’s bank
The central bank acts as a friend, philosopher and guide to the commercial banks because it helps commercial banks in three ways- a) As a reserver of cash of commercial banks. b) As a lender of last resort. c) As a clearing agent.

6. Reserver of cash of commercial banks
The central bank maintains the cash reserves of commercial banks. Every commercial bank has to keep a certain portion of their cash balance as deposits with central bank.

7. Lender of last resort
In certain cases, when the commercial banks are not able to meet the financial requirements of various sources then they may approach the central bank for financial help.

8. Clearing agent
The central bank acts as the clearing house for many banks. The central bank can easily settle the claims of various banks those who have accounts with central bank with the help of the cash available in the central bank.

9. Developmental function
In underdeveloped country, the central bank can perform various developmental and promotional functions. On one hand, it can help in developing money market and on the other hand, it can help in stabilizing the price level.