Reserve Bank of India: Everything you need to know (2024)

The Reserve Bank of India (RBI) is the central bank of India, which is like the money manager for the entire nation. It began operations on April 1st, 1935, under the Reserve Bank of India Act. This organization is known to be the financial heartbeat of India as it aims to further the country's economic growth.

RBI belongs to the Ministry of Finance and reading about this national organization is also very crucial from a competitive exams point of view.

So, let's dig into this article to read more about the Reserve Bank of India's functions, structure, formation and many more.

About Reserve Bank of India

RBI is India's central bank & regulatory organization in charge of banking regulation. This organization uses monetary policy to create financial stability in India, vested with the duty to regulate the country's currency and credit systems. Let's discuss RBI with these short & easy to learn pointers:

• RBI issues the Indian rupee & distributes it. It even oversees India's major payment networks.

• Did you know the RBI's Bharatiya Reserve Bank Note 'Mudran division' prints and mints Indian banknotes and coins?

• When it began its operations, its capital was divided into 100 fully paid shares at the outset. And on January 1st 1949, the RBI was nationalized following India's independence on August 15th 1947.

• RBI had full command over the monetary policy until the Monetary Policy Committee was constituted in 2016.

• The RBI formed the National Payments Corporation of India as one of its specialized divisions to look at our country's payment & settlement systems.

• It also formed the Deposit Insurance and Credit Guarantee Corporation as a specialized division to offer deposit insurance & credit guarantees to all Indian banks.

Offices of RBI

RBI has offices at 32 locations.

How was RBI Formed?

• It was established on 1 April 1935, in compliance with the RBI Act, 1934 provisions.

• The Central Office of the Reserve Bank was first established in Calcutta, then permanently shifted to Mumbai in 1937. This Central Office is where the Governor sits and policies are formulated.

• Originally it was privately owned, but after the nationalization in 1949, the RBI became wholly owned by the GoI.

Structure of RBI

• The affairs of this bank are governed by a central board of directors whom the Government of India appoints in keeping up with the Reserve Bank of India Act.

• The Directors are appointed or nominated for a period of four years.

• Official Directors (central board of directors)

1. Full-time: Governor and not more than 4 Deputy Governors

2. Shri Shaktikanta Das is the current Governor of RBI

• Non-Official Directors

1. There are 10 Directors from various fields and two Government Officials nominated by the government.

2. 4 Directors - one each from four local boards (regional)

Main Functions of RBI

• RBI formulates, implements & monitors the monetary policy to maintain price stability while keeping in mind the growth objective.

• RBI prescribes broader parameters of banking operations within which India's banking and financial system functions to maintain public confidence in the system and protect depositors' interests.

• RBI manages the Foreign Exchange Management Act, 1999 to support external trade and payment. It also promotes orderly development and maintenance of the foreign exchange market in the country.

• RBI issues, exchanges & destroys currency notes and puts coins minted by the Government of India (GOI) into circulation.

• RBI is a regulator and Supervisor of Payment and Settlement Systems as it introduces & upgrades safe as well as efficient modes of payment systems in India.

• RBI is also a banker to the government and performs merchant banking functions for the central and the state governments; it also acts as their banker.

• RBI is also a Banker to banks that maintains all scheduled banks' banking accounts.

Organization Structure

1. Governor

2. Deputy Governors

3. Executive Directors

4. Principal Chief General Managers

5. Chief General Managers

6. General Managers

7. Deputy General Managers

8. Asst. General Managers

9. Managers

10. Asst. Managers

11. Support Staff

RBI Policies

1. Repo Rate

The Repo Rate is like the interest rate that the RBI charges when it lends money to other banks, like a short-term loan. When this rate increases, borrowing money from the RBI becomes more costly. Unfortunately, this often leads to higher interest rates for customers and the public, affecting things such as loans and savings.

2. Reverse Repo Rate (RRR)

The Reverse Repo Rate is like the interest rate at which the RBI borrows money from other banks for a short time. RBI does this to help control inflation when there's too much money floating around in the banking system.

3. Cash Reserve Ratio (CRR)

The Cash Reserve Ratio (CRR) is like a part of a bank's total savings that it must keep as cash with the Reserve Bank of India. It's a requirement to ensure enough money in the banking system for stability.

4. Statutory liquidity ratio (SLR)

Apart from the cash reserve ratio, banks must keep some of their money in gold and approved securities. When the Statutory Liquidity Ratio (SLR) is higher, it means banks have to set aside more of their money in these forms, which can limit their ability to provide loans.

Legal Framework of RBI

I. Acts administered by the Reserve Bank of India

• 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

II. Other relevant Acts

• Negotiable Instruments Act, 1881

• Bankers' Books Evidence Act, 1891

• State Bank of India Act, 1955

• Companies Act, 1956/ Companies Act, 2013

• Securities Contract (Regulation) Act, 1956

• State Bank of India (Subsidiary Banks) Act, 1959

• Deposit Insurance and Credit Guarantee Corporation Act, 1961

• Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970

• Regional Rural Banks Act, 1976

• Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980

• National Bank for Agriculture and Rural Development Act, 1981

• National Housing Bank Act, 1987

• Recovery of Debts Due to Banks and Financial Institutions Act, 1993

• Competition Act, 2002

• Indian Coinage Act, 2011: Governs currency and coins

• Banking Secrecy Act, 1970

• The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003

• The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993

Conclusion

Hence, the RBI is more than just a bank; it's a guardian of India's financial well-being. Its policies and decisions ensure the economy stays stable and your money remains safe. So, it works tirelessly behind the scenes to keep India's financial engine running smoothly.

FAQs on RBI

1. What is the primary function of the Reserve Bank of India (RBI)?

A) Currency Issuance

B) Commercial Banking

C) Tax Collection

D) Defense Financing

2. Who is the current Governor of the Reserve Bank of India?

A) Urjit Patel

B) Raghuram Rajan

C) Shaktikanta Das

D) D. Subbarao

3. Which year was the Reserve Bank of India (RBI) established?

A) 1935

B) 1947

C) 1950

D) 1969

4. Which of the following is not a subsidiary of the Reserve Bank of India (RBI)?

A) National Housing Bank (NHB)

B) Industrial Development Bank of India (IDBI)

C) Export-Import Bank of India (EXIM Bank)

D) Small Industries Development Bank of India (SIDBI)

5. Which of the following is NOT a function of the Reserve Bank of India (RBI)?

A) Banker to the Government

B) Issuer of Currency

C) Regulation of Foreign Exchange

D) Granting Loans to Individuals

Answers

1. a

2. c

3. a

4. b

5. d