Rbi PDF

Reserve Bank of India
Last Updated: July 2022
How was it Formed?
The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of
the Reserve Bank of India Act, 1934.
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 nationalization in 1949, the Reserve Bank is fully
owned by the Government of India.
What does the Preamble of the RBI Say?
The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as:
To regulate the issue of Bank notes and 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.
To have a modern monetary policy framework to meet the challenge of an increasingly complex
economy.
To maintain price stability while keeping in mind the objective of growth.
What is the Structure 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 Act.
The directors are appointed/nominated for a period of four years.
What does RBI Constitute?
Official Directors (central board of directors)

Full-time: Governor and not more than four Deputy Governors
Shri Shaktikanta Das is the present Governor of RBI
Non-Official Directors
Nominated by Government: ten Directors from various fields and two government
Official
Others: four Directors - one each from four local boards (regional)
What are the Main Functions of the RBI?
Monetary Authority:
It implements and monitors the monetary policy and ensures price stability while keeping
in mind the objective of growth.
An amendment to RBI Act, 1934, was made in May 2016, providing the statutory basis for
the implementation of the flexible inflation targeting framework.
Section 45ZB of the amended RBI Act, 1934, also provides for an empowered six-member
Monetary Policy Committee (MPC) to be constituted by the Central Government by
notification in the Official Gazette
Monetary Policy Committee
It was created in 2016.

It was created to bring transparency and accountability in deciding monetary policy.
MPC determines the policy interest rate required to achieve the inflation target.
Committee comprises of six members where Governor RBI acts as an ex-officio chairman. Three
members are from RBI and three are selected by government.
Inflation target is to be set once in a five year. It is set by the Government of India, in consultation
with the Reserve Bank.
Current inflation target is pegged at 4% with -2/+2 tolerance till March 31, 2021.
Regulator and Supervisor of the Financial System:

Prescribes broad parameters of banking operations within which the country's banking and
financial system functions such as issuing licenses, branch expansion, liquidity of assets,
amalgamation of banks etc.
Objective: maintain public confidence in the system, protect depositors' interest and
provide cost-effective banking services such as commercial banking, co-operative banking,
to the public.
Manager of Foreign Exchange:
Manages the Foreign Exchange reserves of India.
It facilitates external trade and payment and promotes orderly development and
maintenance of foreign exchange market in India.
It also maintains external value of rupee.
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.
Developmental Role:
Performs a wide range of promotional functions to support national objectives such as
making institutional arrangements for rural or agricultural finance.
Commercial banks lend loans to small-scale industrial units as per the directives (Priority
Sector Lending) issued by the Reserve Bank of India time to time.
Financial Inclusion:
The Reserve Bank has selected a bank led model for financial inclusion in India. RBI has
undertaken a series of policy measures. Some of the important ones are:
No Frills Accounts – account either with nil or very low minimum balance as well
as charges that would make such accounts accessible to vast sections of
population.
Use of Technology – devices such as ATMs, hand held devices to identify user
accounts through a card and biometric identifier, Deposit taking machines and
Internet banking and Mobile banking facility to provide the banking services to all
sections of society with more ease.
Related Functions:
Banker to the Government: performs merchant banking function for the central and the
state governments.
It is entrusted with central govt.’s money, remittances, exchange and manages its public
debt as well.
Banker to banks: maintains banking accounts of all scheduled banks. It also acts as lender
of last resorts by providing fund to banks.
Which Acts are Administered by the RBI?

Reserve Bank of India Act, 1934
Public Debt Act, 1944/Government Securities Act, 2006
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 (Chapter II)
Credit Information Companies (Regulation) Act, 2005
Payment and Settlement Systems Act, 2007
Payment and Settlement Systems Act, 2007 As Amended up to 2019
Payment and Settlement Systems Regulations, 2008 As Amended up to 2022
Factoring Regulation Act, 2011
What Initiatives have been Taken by RBI?
Recently, the Reserve Bank of India (RBI) governor inaugurated the Reserve Bank Innovation
Hub (RBIH) in Bengaluru.
It has been set up as a Section 8 company under the Companies Act, 2013 to create an
ecosystem that focuses on promoting access to financial services and products for the low-
income population in the country.
It is a wholly owned subsidiary of the RBI.
More recently, RBI has put in place a mechanism to facilitate International Trade in Rupees
(INR), with immediate effect.
As per the broad framework for cross-border trade transactions in INR under Foreign
Exchange Management Act, 1999 (FEMA), all exports and imports under this arrangement
may be denominated and invoiced in rupee (INR) and the exchange rate between the
currencies of the two trading partner countries may be market determined.
How Independently does the RBI Function?
Under section 7 of the RBI Act, the central government may from time to time give such directions
to the RBI as it may, after consultation with the Governor of the Bank, consider necessary in the
public interest. Moreover, there is no legal act mandating autonomy of the RBI.
Yet, RBI has always been looked upon as an autonomous body which has under its umbrella all
commercial banks, be it PSBs or private banks or foreign banks.
It is not only vested with the powers to formulate the monetary policy but also to monitor the
functioning of all banks.
To play its role effectively, autonomy in its functioning is sine qua non for RBI.
However, the independence of RBI has been challenged many times due to a continued tug of war
for wresting more power between the bank and the govt.
The main reasons for this have been:
RBI’s failure to check the growth of Non Performing Assets.
Reduced liquidity in the economy due to tight monetary policy followed by RBI.
Corrective measures taken by RBI to clean up the banking system which are not seen very
positively by the government
Clash between short term populist agenda of the government and long term view for price
stability taken by RBI.
Regulation of Public Sector Banks: One important limitation is that the Reserve Bank is
statutorily limited in undertaking the full scope of actions against public sector banks
(PSBs) – such as asset divestiture, replacement of management and Board, license
revocation, and resolution actions such as mergers or sales –– all of which it can and does
deploy effectively in case of private banks.
Erosion of statutory powers of the central bank through piece-meal legislative amendments
that directly or indirectly eat at separation of the central bank from the government.
What are Important Publications of RBI?
Financial Stability Report

Monetary Policy Report
Report on Financial Review
PDF Refernece URL: https://www.drishtiias.com/printpdf/important-institutions-national-institution-reserve-

bank-of-india
Powered by TCPDF (www.tcpdf.org)

Rbi PDF

Uploaded by

Copyright:

Available Formats

Rbi PDF

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Rbi PDF

Uploaded by

Copyright:

Available Formats

Reserve Bank of India

Last Updated: July 2022

How was it Formed?

What does the Preamble of the RBI Say?

What is the Structure of RBI?

What does RBI Constitute?

Official Directors (central board of directors)

What are the Main Functions of the RBI?

Monetary Policy Committee

It was created in 2016.

Regulator and Supervisor of the Financial System:

Which Acts are Administered by the RBI?

What Initiatives have been Taken by RBI?

How Independently does the RBI Function?

What are Important Publications of RBI?

Financial Stability Report

PDF Refernece URL: https://www.drishtiias.com/printpdf/important-institutions-national-institution-reserve-

Powered by TCPDF (www.tcpdf.org)

You might also like