In what ways does the Reserve Bank of India (Reserve Bank of India) supervise the functioning of banks? Why is this necessary?
Or
Which government body supervises the functioning of formal sources of loans in India? Explain.
The Reserve Bank ofIndia supervises the functioning of hanks as follows
(i) The Reserve Bank of India checks that the banks actually maintain a minimum cash balance out of the deposits they receive (currently this is 15%).
(ii) The banks have to periodically submit information to the Reserve Bank of India on how much they are lending, to whom, at what interest rate, etc.
Thus, the Reserve Bank of India ensures that the banks give loans not just to profit-making businesses and traders, but also to small cultivators and other small borrowers.
This supervision is necessary to ensure that small businesses also grow, besides others. Further, this monitoringensures that banks do not loan more money than they are supposed to, as such an action can create a crisis situation.