and distribute this flow to households, businesses, and industries. But for this water supply

system to function smoothly, there must be a strong, wise, and disciplined authority making

sure there is neither shortage nor overflow, no leakages nor unfair distribution. That

Since its establishment in 1935, the RBI has played the role of the “guardian” of India’s

banking business. It ensures that banks remain healthy, customers’ money is safe, inflation

is under check, and the overall economy does not face shocks. The RBI’s regulatory role is

financial system. Let’s walk through its major functions step by step in an engaging way.

This gatekeeping function makes sure that the financial system does not get filled with weak

or fraudulent institutions.

Once banks are set up, the RBI does not leave them on their own. It constantly monitors

their daily activities. This is like how a school principal not only admits students but also

keeps an eye on their conduct and performance.

Imagine you are the captain of a ship. You may set all the rules, but unless you check

whether the crew is following them, the ship might sink. RBI plays this supervisory role by

regularly inspecting banks.

Another crucial role of RBI is to act like a thermostat for the economy—keeping it neither

it’s the EMI on a home loan or the interest earned on savings.

For common people, the most important thing is the safety of their hard-earned money. RBI

This protective role builds trust, which is the backbone of the banking system.

This makes the financial system more equitable and people-friendly.

In today’s globalized world, money moves across borders every second. RBI manages this

Thus, RBI is like the architect of a modern, tech-driven financial ecosystem.

Finally, RBI acts as the “doctor” when the banking system falls sick. If a bank faces a sudden

liquidity crisis or panic withdrawals by depositors, RBI steps in with emergency funds as the

We saw this role during episodes like the Yes Bank crisis in 2020, where RBI intervened

quickly, restructured the bank, and protected depositors’ money.

keeps moving forward steadily.

system remains one of the most stable in the world.

Imagine this scene:

One bright morning, Rohan, a young college student, walked into a bank for the very first

time. He was excited but also a little nervous. Why? Because he had heard from his father,

mother, and even his grandfather that banks are the safest place to keep money. But when

want to open?”

Rohan was puzzled. He thought a bank account was just… well… a bank account! But soon

different types of accounts depending on people’s needs.

“Rohan,” he said, “this is the most popular type of account. It’s like a piggy bank, but safer

and smarter. You can deposit your money anytime, and whenever you need it, you can

withdraw it. On top of that, the bank pays you a little reward in the form of interest for

keeping your money with them.”

It’s not about saving money here; it’s about keeping money moving smoothly like the

Now, Rohan’s grandfather entered the bank too. He chuckled and said, “For us old people,

the best choice is a Fixed Deposit Account.”

Here’s how it works: you put a lump sum of money in the bank for a fixed period (say 1 year,

3 years, or 5 years). During this time, you cannot normally withdraw it. In return, the bank

gives you a higher interest rate than a savings account.

some special accounts.”

Market risk comes from external factors that are beyond one’s control. For instance, sudden

It’s like sudden storms at sea—you can’t stop them, but you can prepare by adjusting your

sails.

We live in a world where climate change and natural disasters are growing realities.

Businesses also face risks from earthquakes, floods, droughts, or government regulations on

good captain doesn’t panic when a storm comes; instead, he uses his training, equipment,

and planning to guide the ship safely. Similarly, businesses and individuals can survive and

technological, or environmental—each risk is like a wave in the ocean. Some are small

ripples, some are giant storms, but with proper risk management, the journey of life and

business continues smoothly.

banks handle their “ship of money.”

Banks are not like ordinary shops. A shopkeeper sells goods at a price higher than cost and

product.

But here’s the tricky part:

loans?

matching their inflows and outflows of money, managing risks, and ensuring smooth sailing.

commitments you must fulfill.

The dangers are mainly of three types:

experienced officers (senior managers, risk officers, treasury heads) meet regularly to:

Now comes the balancing act. The bank ensures that:

according to the wind, banks adjust loan rates, deposit schemes, and investment portfolios

Suppose a bank accepts ₹100 crores as deposits from the public for 1 year at an interest rate

of 5%. Now, the bank decides to lend this money as home loans at 8% interest for 10 years.

Through ALM, the bank would avoid such mistakes by matching the maturity of deposits

with loans, maybe using some deposits for short-term lending and some for long-term.

system strong.

Imagine a person named Raghav. He runs a small shop in his town, earns honestly, and

deposits his savings into the bank. On the other side, there is another person—let’s call him

Think of it like this: if you spill ink on your shirt, you wash it until the stain is gone. Similarly,

criminals try to “wash” their black money until it looks white. The cycle usually has three

The danger? Once such money gets mixed with honest income, it becomes very difficult to

separate. It weakens the economy, encourages crime, funds terrorism, and reduces trust in

systems. Just like a school principal ensures discipline among students, RBI ensures that

Money laundering became a global concern, especially because laundered money was also

to identify and report suspicious behavior.

Just like renewing your driving license, banks must update customer details periodically. This

prevents misuse of old accounts.

The beauty of these measures is that they don’t just protect banks, they protect the entire

By following these guidelines, banks act as the “gatekeepers” of the economy, ensuring only

genuine money flows through.

Think of the Indian banking system as a clean river. Honest citizens pour clean water (earned

money) into it. But criminals try to pour dirty, polluted water (illegal money) into the same

and keeping proper records.

So next time you walk into a bank and the staff asks for your Aadhaar or PAN, remember—

moment—how do you know that the people managing the bank are not misusing your

fair play, corporate governance ensures that banks are run with transparency,

economy at large.

Now, let’s dive deeper into its objectives and mechanism, but in a way that feels like a

journey rather than a boring list.

Think of a bank as a ship sailing on a vast ocean. The objectives of corporate governance are

safeguards the very foundation of banking.

Imagine if a bank kept everything secret—their loans, risks, or even losses. No one would

trust them. Corporate governance demands transparency in financial reporting and

decision-making. This allows regulators, investors, and customers to clearly see how the

Corporate governance makes sure they are accountable for their decisions. If the bank

makes a mistake or takes unnecessary risks, the management must answer—not hide.

global financial crises.

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