Reserve Bank of India (RBI)

RBIIn 1926, the Royal Commission on Indian Currency and Finance which is also known as the Hilton-Young Commission recommended the creation of a central bank mainly to separate the control of currency and credit from the government and extend banking facilities throughout the country. The Reserve Bank of India (RBI) was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India act, 1934 with a Share Capital of  5 crore, divided into shares of  100 each fully paid up. It is a statutory body. The RBI plays role of regulator of the banking system in India. The Banking Regulation Act 1949 and the RBI Act 1953 has given the RBI the power to regulate the banking system.The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India. Reserve Bank of India has 26 departments which focus on policy issues in the Reserve Bank’s functional areas and internal operations It has 19 regional offices and 9 sub-offices.

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Management

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 Act.

  1. Appointed/nominated for a period of four years
  2. Constitution:
    • Official Directors
      Full-time : Governor and not more than four Deputy Governors
    • Non-Official Directors
      Nominated by Government: Ten Directors from various fields and two government Officials
      Others: four Directors – Each Non-official director represents the local Boards located in Delhi, Chennai, Kolkata and Mumbai representing 4 regions of India.
    • One representative of the central government.

Wholly-Owned Subsidiaries

  • Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL)
  • Deposit Insurance and Credit Guarantee Corporation (DICGC)

Role

Board of Financial Supervision (BFS): The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India chaired by the RBI governor. The Financial Supervision functions are carried out by the Reserve Bank of India under the guidance of the Board for Financial Supervision (BFS). Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies.

Board for Payment and Settlement System: Board for Payment and Settlement Systems was constituted by the Reserve Bank in 2005 as a Committee of its Central Board. The functions are to regulate and supervise the payment and settlement systems, Set standards for existing and future systems, Approve criteria for authorization of payment and settlement systems

Functions

  1. Monetary Authority
    • Formulates, implements and monitors the monetary policy.
    • Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.
  2. Regulator and supervisor of the financial system
    • Prescribes broad parameters of banking operations within which the country’s banking and financial system functions.
    • Objective: Maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public.
  3. Manager of Foreign Exchange
    • Manages the Foreign Exchange Management Act, 1999.
    • Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
  4. Issuer of currency
    • Issues and exchanges or destroys currency and coins not fit for circulation.
    • Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.
  5. Developmental role
    • Performs a wide range of promotional functions to support national objectives.
  6.  Related Functions
    • Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.
    • Banker to banks: maintains banking accounts of all scheduled banks.

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