In what ways does the Reserve Bank of India supervise the functioning of banks? Why is this necessary?

The Reserve Bank of India supervises the functioning of formal sources of loans.
For instance, we have seen that the banks maintain a minimum cash balance out of the deposits they receive. The RBI monitors that the banks actually maintain the cash balance. Similarly, the RBI sees that the banks give loans not just to profit-making businesses and traders but also to small cultivators, small scale industries and small borrowers etc. Periodically, banks have to submit information to the RBI on how much they are lending, to whom and at what interest rate etc.

The supervision of RBI is necessary for the following reasons :

(i)It ensures safety to the bank deposits of people.

(ii)It helps in collection of economic data all over the country.

(iii)It contains corrupt practices from creeping within banks.

(iv)Information forwarded by banks to RBI helps Ministry of Finance in drafting and presentation of National Budget every year.