Role of RBI :
The Reserve Bank of India manages the public debt and issues new loans on behalf of the Union and the State Governments under the powers derived from the Reserve Bank of India Act. It also undertakes cash and liquidity management for the Government of India and State Governments and administers the scheme of Ways and Means Advances (WMA).
Internal Debt Management Department of the RBI manages internal debt. This involves auctioning the Government debt from time to time, introduction of new instruments, smoothening the maturity structure of debt, placing of debt at market related rates and improving depth and liquidity of Government securities by developing active secondary market for them. The Government Securities Act, 2006 governs the Government Debt Market.
The Reserve Bank of India is, therefore, the main regulator for the Money Market. RBI is responsible for the market for repo/reverse repo transactions in Corporate debt. Issuance of Non-convertible Debentures Reserve Bank Directions, 2010 is also applicable for issuance of NCDs of original or initial maturity upto 1 year. Apart from its role as a regulator, it has to simultaneously fulfill several other important objectives viz. managing the borrowing program of the Government of India, controlling inflation, ensuring adequate credit at reasonable costs to various sectors of the economy, managing the foreign exchange reserves of the country and ensuring a stable currency environment.
RBI controls the issuance of new banking licenses to banks; the manner in which various scheduled banks raise money from depositors; and deployment of money through its policies on CRR, SLR, priority sector lending, export refinancing, guidelines on investment assets etc.
Another major area under the control of the RBI is the interest rate policy. Earlier, it used to strictly control interest rates through a directed system of interest rates. Each type of lending activity was supposed to be carried out at a pre-specified interest rate. Over the years RBI has moved slowly towards a regime of market determined controls. RBI provides negotiated dealing system which is an electronic platform for facilitating dealing in Government Securities and money market instruments.