What is the Reserve Bank of India?


Reserve Bank of India

The Reserve Bank of India (RBI) is India’s central bank, popularly known as the banker’s bank. The Reserve Bank of India controls monetary and other banking policies of the Indian government. The Reserve Bank of India (RBI) was introduced on April 1, 1935, under the guidelines with the Reserve Bank of India Act, 1934. The Reserve Bank is permanently located in Mumbai since 1937.

 Establishment of Reserve Bank of India

The Reserve Bank is completely owned and operated by the Government of India.

The Preamble of the Reserve Bank of India describes the major functions of the Reserve Bank as:

  •         Regulating the issue of Banknotes
  •         Securing monetary stability in India
  •         Modernising the monetary policy framework to meet economic challenges
  •         The Reserve Bank’s operations are governed by a central board of directors, RBI is on the general operated with a 21-member central board of directors appointed by the Government of India in accordance with the Reserve Bank of India Act.

The Central board of directors comprised of:

  •         Official Directors – The governor who is appointed/nominated for a time of four years along with four Deputy Governors
  •         Non-Official Directors – Ten Directors from different fields and two government Official

 

Objectives

The main and basic objectives of RBI are to supervise and undertake initiatives for the financial sector consisting of commercial banks, financial institutions and non-banking financial companies (NBFCs).

Some key initiatives are:

  • Restructuring bank inspections
  • Fortifying the task of statutory auditors in the banking system

 

Legal Framework

The Reserve Bank of India comes under the purview of the following Acts:

  •         Reserve Bank of India Act, 1934
  •         Public Debt Act, 1944
  •         Government Securities Regulations, 2007
  •         Banking Regulation Act, 1949
  •         Foreign Exchange Management Act, 1999
  •         Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
  •         Credit Information Companies(Regulation) Act, 2005
  •         Payment and Settlement Systems Act, 2007

 Major Functions of RBI

 Monetary Authority 

  •         Formulating and implementing the national monetary policy.
  •         Maintaining price stability over all sectors while also keeping the objective of growth.

 Regulatory and Supervisory 

  •         Set parameters for banks and financial operations under which banking and financial systems function.
  •         Safeguard investors interest and provide economic and cost-effective banking to the public.

 Foreign Exchange Management

  • Oversees the Foreign Exchange Management Act, 1999.
  • Facilitate external trade and development of the foreign exchange market in India.

 Currency Issuer

  •         Issues, exchanges or destroys the currency and not suitable for circulation.
  •         Give the public adequately with currency notes and coins and in good quality.

 Developmental role

  •         Promotes and performs a promotional task to support national banking and financial objectives.

 Related Functions

  •         Grant banking solutions to the central and the state governments and also act as their banker.
  •         Chief Banker to all banks: maintains banking accounts of all scheduled banks.
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