Central bank

A central bank sits at the top of the monetary system: it issues currency, acts as banker to the government and to commercial banks, holds reserves, and runs monetary policy. India's central bank is the Reserve Bank of India (RBI), established in 1935 and nationalised in 1949. Its core job today is inflation targeting: keeping consumer price inflation near a mandated target while supporting growth. Worked example: if banks hold 1000 in deposits and the cash reserve ratio is 4%, they must park 40 with the central bank, leaving 960 to lend or invest — a direct lever on credit creation.