Reserve Bank Of India

Academy   Last Update - 2023-06-09

The Reserve Bank of India was established on April 1, 1935 under the Reserve Bank of India Act, 1934. Though initially RBI was privately owned, it was nationalized in 1949. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937.

Objective:

The Main objectives of the Reserve Bank is : “to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.”

Prior to the establishment of the Reserve Bank, the Indian financial system was totally inadequate dual control of currency by the Central Government and of credit by the Imperial Bank of India. The Hilton-Young Commission, therefore ended by setting-up of a central bank — called the Reserve Bank of India — which would regulate the financial policy and develop banking facilities throughout the country. Hence, the Reserve Bank of India was established with this primary object in view.

The fundamental object of the Reserve Bank of India is to discharge purely central banking functions in the Indian money market, i.e., to act as the note- issuing authority, bankers’ bank and banker to government, and to promote the growth of the economy within the framework of the general economic policy of the government, consistent with the need of maintenance of price stability.

Central Board of RBI:

The Reserve Bank’s affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India(RBI) Act 1934.

Constitution:

The organization and management of RBI is vested on the Central Board of Directors. It is responsible for the management of RBI.Central Board of Directors consist of 20 members. It is constituted as follows.

a) One Governor:

It is the highest authority of RBI. He is appointed by the Government of India for a term of 5 years. He can be re-appointed for another term.

b) Four Deputy Governors:

Four deputy Governors are nominated by Central Govt. for a term of 5 years.

c) Fifteen Directors:

Other fifteen members of the Central Board are appointed by the Central Government. Out of these , four directors,one each from the four local Boards are nominated by the Government separately by the Central Government.

The Central board of directors exercises all the powers of the bank. The Central Board should meet atleast six times in each year and at least once in three months. Usually, the Central Boardkeeps a meeting in March every year at New Delhi so as to discuss the budget with the Finance Minister after its presentation in parliament. Similarly, it keeps a meeting in August at Mumbai in order to pass the Bank’s annual report and accounts.

Local Boards :

The RBI is Southern rivided into four regions: the Western, the Eastern, the Northern and the southern regions. For each of these regions there is a Local Board with headquarters in Mumbai,Kolkata,New Delhi and Chennai.

Besides the central board, there are local boards for four regional areas of the country with their head-quarters at Mumbai, Kolkata, Chennai, and New Delhi. Local Boards consist of five members each, appointed by the central Government for a term of 4 years to represent territorial and economic interests and the interests of co-operatives and indigenous banks. The function of the local boards is to advise the central board on general and specific issues referred to them and to perform duties which the central board delegates.

Functions of RBI:

• Reserve Bank of India is the main monetary authority of the country. It formulates, implements and monitors the monetary policy and thereby plays a key role in maintaining price stability and ensuring adequate flow of credit to productive sectors.
• RBI is the regulator and supervisor of the financial system in the country. It prescribes broad parameters of banking operations within which the country’s banking and financial system functions.
• It manages the foreign exchange of the country.
• Performs merchant banking function for the central and the state governments; also acts as their banker.
• Maintains banking accounts of all scheduled banks.
• Issues and exchanges or destroys currency and coins not fit for circulation.

Offices of RBI:

NEW OFFICES:

1. With a view to bestowing focused attention to urban co-operative banking sector in the state of Goa, the Reserve Bank of India has decided to open an Urban Banks Department in Goa at its Panaji Office . The Department has started functioning at the Reserve Bank of India, Panaji, Goa from June 17, 2011. Its functional jurisdiction will cover the entire State of Goa.

2. The Reserve Bank of India (RBI) has opened its sub-office at Agartala on 18th May 2011 . Tripura will be the second State in the North-East region to have an RBI office. The new RBI office is housed at Jackson Gate building in Agartala and will function under the charge of a General Manager. The office is expected to initially focus on development of banking in the State and gradually take up other central banking functions.

Subsidiaries of RBI:

National Housing Bank (NHB)

National Housing Bank was set up on July 9, 1988 under the National Housing Bank Act, 1987 as a wholly-owned subsidiary of the Reserve Bank to act as an apex level institution for housing. NHB has been established to achieve, among other things, the following objectives:

1. To promote a sound, healthy, viable and cost effective housing finance system to all segments of the population and to integrate the housing finance system with the overall financial system.
2. To promote a network of dedicated housing finance institutions to adequately serve various regions and different income groups.
3. To augment resources for the sector and channelize them for housing.
4. To make housing credit more affordable.
5. To regulate the activities of housing finance companies based on regulatory and supervisory authority derived under the Act.
6. To encourage augmentation of supply of build able land and also building materials for housing and to upgrade the housing stock in the country.
7. To encourage public agencies to emerge as facilitators and suppliers of serviced land for housing.

Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL)

The Reserve Bank established BRBNMPL in February 1995 as a wholly-owned subsidiary to augment the production of bank notes in India and to enable bridging of the gap between supply and demand for bank notes in the country. The BRBNMPL has been registered as a Public Limited Company under the Companies Act, 1956 with its Registered and Corporate Office situated at Bengaluru. The company manages two Presses, one at Mysore in Karnataka and the other at Salboni in West Bengal.

National Bank for Agriculture and Rural Development (NABARD)

National Bank of Agriculture and Rural Development (NABARD) is one of the subsidiaries where the majority stake is held by the Reserve Bank. NABARD is an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas.

Deposit Insurance and Credit Guarantee Corporation (DICGC)

With a view to integrating the functions of deposit insurance and credit guarantee, the Deposit Insurance Corporation and Credit Guarantee Corporation of India were merged and the present Deposit Insurance and Credit Guarantee Corporation (DICGC) came into existence on July 15, 1978.Deposit Insurance and Credit Guarantee Corporation (DICGC), established under the DICGC Act 1961, is one of the wholly owned subsidiaries of the Reserve Bank. The DICGC insures all deposits (such as savings, fixed, current,and recurring deposits) with eligible banks except the following:

1) Deposits of the State Land Development Banks with the State cooperative bank;
2) Any amount due on account of of any deposit received outside India;
3) Any amount, which has been specifically exempted by the corporation with the previous approval of RBI.

Every eligible bank depositor is insured upto a maximum of Rs.1,00,000(Rupees One Lakh) for both principal and interest amount held by him.

Detection of fake currency

In order to curb the fake currency menace, RBI has launched a website to raise awareness among masses about fake notes in the market. provides information about identifying fake currency.

On 22 January 2014; RBI gave a press release stating that after 31 March 2014, it will completely withdraw from circulation all banknotes issued prior to 2005. From 1 April 2014, the public will be required to approach banks for exchanging these notes. Banks will provide exchange facility for these notes until further communication. The Reserve Bank has also clarified that the notes issued before 2005 will continue to be legal tender. This would mean that banks are required to exchange the notes for their customers as well as for non-customers. From 1 July 2014, however, to exchange more than 15 pieces of `500 and `1000 notes, non-customers will have to furnish proof of identity and residence as well as show aadhar to the bank branch in which she/he wants to exchange the notes.

This move from the Reserve Bank is expected to unearth black money held in cash. As the new currency notes have added security features, they would help in curbing the menace of fake currency.^[50]

Developmental role

The central bank has to perform a wide range of promotional functions to support national objectives and industries. The RBI faces a lot of inter-sectoral and local inflation-related problems. Some of these problems are results of the dominant part of the public sector.

Related functions

The RBI is also a banker to the government and performs merchant banking function for the central and the state governments. It also acts as their banker. The National Housing Bank (NHB) was established in 1988 to promote private real estate acquisition.^[52] The institution maintains banking accounts of all scheduled banks, too. RBI on 7 August 2012 said that Indian banking system is resilient enough to face the stress caused by the drought-like situation because of poor monsoon this year.^[53]

Demonetisation

On 8 November 2016, the Government of India announced the demonetisation of all ₹500 (US$7.70) and ₹1,000 (US$15) banknotes of the Mahatma Gandhi Series on the recommendation of the Reserve Bank of India (RBI).The government claimed that the action would curtail the shadow economy and crack down on the use of illicit and counterfeit cash to fund illegal activity and terrorism.

RBI governors

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