Explain the reason for necessity of supervision by the Reserve Bank of India of formal sources of loans.

The RBI monitors that the banks actually maintain the cash balance. The RBI sees the the banks give loan not just to profit - making business and traders but also to small cultivators, small-scale industries, small borrowers, etc. Periodically, banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate, etc.