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RESERVE BANK OF INDIA

The Reserve Bank of India was established by legislation in 1934 through the Reserve Bank
of India Act, 1934. It started functioning on April 1, 1935. Its central office is at Mumbai
since 1937. Though originally privately owned, since its nationalization in 1949, it is fully
owned by the Government of India. The Reserve Bank of India is the central bank of our
country.

the objectives as:

(i) to secure monetary stability within the country

(ii) (ii) to operate the currency and credit system to the advantage of the country.

Organization structure of the Reserve Bank

The bank is managed by a central board of directors and four local boards of directors.

Central board: The central board is appointed/nominated by the central government for a
period of four years. It consists of official directors and non-official directors.

Official directors: The governor and not more than four deputy governors are full-time
official directors.

Non-official directors: They are fifteen in number. Ten directors from various fields and one
government official are nominated by the government while four directors from four local
boards are nominated as non-official directors.

The functions of the central board are general superintendence and direction of the bank’s
affairs.

Local boards: There are four local boards, one each for the four regions of the country in
Mumbai, Kolkata, Chennai, and New Delhi. The membership of each local board consists of
five members appointed by the central government for a term of four years.

The functions of the local board is to advise the central board on local matters; to
represent territorial and economic interns of local cooperative and indigenous banks’

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interests, and to perform such other functions as delegated by the central board from time
to time.

FUNCTIONS OF RBI

 ISSUING CURRENCY NOTES

The RBI has the monopoly of issuing currency notes in India, except for one rupee note and
coins which are issued by the Ministry of Finance, Government of India. RBI issues and
distributes currencies through its two major departments viz, the issue department and
banking department.

RBI follows the Minimum reserve system of note issue. According to this system, RBI has to
keep a minimum reserve of 200 crores, out of which 115 crores are to be kept in the form
of gold reserves and 85 crores in the form of foreign exchange reserves.

 BANKER TO THE GOVERNMENT

RBI acts as a banker to both the central government and state governments. The Reserve
Bank manages the public debt of the central and the state governments and also acts as a
banker to them under the provisions of the Reserve Bank of India Act, 1934. As a banker to
the government it provides the following services:

(i) It maintains and operates the deposit account of the central and state
governments.
,
(ii) It receives and makes payments on behalf of the central and state governments.
(iii) It manages public debt and the issue of new loans and treasury bills of the
central government.
(iv) It advances money to the central government in times of emergency.
(v) RBI provides fund remittance facilities to central and state governments.
(vi) It acts as an advisor to the government on all financial matters, formulation of
five year plans, resource mobilization, and more.
(vii) It represents the government of India as a member of IMF and (IBRD).

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 BANKER TO THE BANKS

The central bank provides a variety of financial facilities and accommodations to scheduled
banks. It takes care of temporary liquidity gaps in the banking system through refinancing
schemes. It acts as the lender of last resort to foster financial stability.

 CREDIT CONTROL

RBI controls the availability of credit in the Indian economy. It is the commercial banks that
make the credit available in the economy. Since the commercial banks are controlled by
RBI, it is easy to exercise control over the volume of credit available in the economy by
controlling the activities of commercial banks. RBI exercises credit control through a variety
of measures. The RBI has made efforts to improve the volume and terms of credit by
directing bank credit to certain sectors such as agriculture, exports, small-scale industries,
infrastructure, housing, and micro-credit institutions, and simplifying the access to credit
by simplifying documentation and decentralizing the sanctioning to the branch level.

 REGULATOR AND SUPERVISOR OF THE FINANCIAL SYSTEM

The objectives of the Reserve Bank as a regulator and supervisor of the financial system is
to maintain public confidence in the system, protect depositors’ interest and provide cost-
effective banking services to the public. In order to attain these objectives, the bank
prescribes broad parameters of banking operations within which the country’s banking and
financial system functions.

The RBI regulates and supervises the banking system in India under the provisions of the
Banking Regulation Act, 1949, and the Reserve Bank of India Act, 1934. The RBI regulates
select financial institutions (FIs) and non-banking financial companies (NBFCs) under
Chapter IIIB of the Reserve Bank of India Act.

The process of issue of regulations is in three stages:

1. Preliminary discussion with representative bodies and select market participants.

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2. Appointment of working groups consisting of regulators, market participants, and

academicians to prepare the technical report.

3. Placement of the report in the public domain for feedback. Based on the feedback, draft
guidelines and then final guidelines are issued.

The Reserve Bank is entrusted with the function of the development and regulation of
money, foreign exchange, and government securities markets. The RBI undertakes this
function as it is a monetary authority as well as a debt manager to the government and is
responsible for the stability of the financial system.

The RBI has taken steps to develop a pure inter-bank money market and broaden the repo
market and widen other money market segments. The system of primary dealers was
introduced in the government securities market to increase liquidity and secondary market
trading. The introduction of the negotiated dealing system and operationalization of
Clearing Corporation of India Limited (CCIL) will impart greater flexibility to the RBI to
operate its instruments of monetary policy.

 DEVELOPMENT FUNCTIONS

The Reserve Bank performs a wide range of promotional functions to support national
objectives. The RBI helped to set up a number of development financial institutions such
as the Industrial Development Bank of India, the National Bank for Agriculture and Rural
Development, the Industrial Reconstruction Bank of India, the National Housing Bank, and,
recently, the Infrastructure Development Finance Company Limited to provide project and
infrastructure finance. It has also helped to set up the Unit Trust of India, the Discount and
Finance House of India, and the Securities Trading Corporation of India to promote and
foster financial markets.

From 1991–92, the RBI has played an activist role of promoting financial sector reforms for
attaining sustainable economic growth and stability.

The Reserve Bank has made priority sector lending mandatory for both public and private
sector banks. As agriculture continues to provide productive employment opportunities for
two-thirds of the population, a higher amount of credit is directed to agriculture. Banks

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have been advised to manage the rural credit delivery systems and processes to ensure a
higher credit flow to small and medium-scale industries. Micro-credit schemes to help the
poor and artisans in rural areas have been initiated by the bank. It is striving to strengthen
the cooperative credit structure to reap productivity and employment gains.

 COLLECTION OF DATA AND THEIR PUBLICATIONS

RBI collects statistical data and economic information through its department of economic
analysis and policy. This department conducts research and reviews financial and banking
conditions in the country. It compiles data on economic matters like money, finance, credit,
industrial production, prices, and more. The data so compiled are published in its various
publications. Reserve bank of India bulletin (monthly), and report on trends and progress
of banking in India-(annual) are some of the popular publications of RBI. In short, RBI is
engaged in the collection and dissemination of vital economic and financial data and
information.

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