UNIT-2

Reserve Bank of India (RBI)

The bank was held by private stakeholders before this. In the year
2016, the original RBI Act of 1934 was amended and that provided the
statutory basis for the implementation of the flexible inflation-targeting
framework. 
The Preamble of Reserve Bank of India
Another thing to know about RBI is its Preamble. It
describes the basic functions of the Reserve Bank as:
“…to regulate the issue of Bank Notes and keeping
of reserves to secure monetary stability in India and
generally to operate the currency and credit system
of the country to its advantage.”
Structure and Functions of RBI
Reserve Bank of India (RBI)
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.
Structure of RBI
Central Board
The Reserve Bank’s affairs are governed by a central board of directors. The Central
Board of Directors is the apex body in the governance structure of the Reserve Bank.
There are also four Local Boards for the Northern, Southern, Eastern and Western areas
of the country which take care of local interests. The central government
appoints/nominates directors to the Central Board and members to the Local Boards in
accordance with the Reserve Bank of India (RBI) Act. The composition of the Central
Board is enshrined under Section 8(1) of the RBI Act, 1934.
The Central Board consists of:
The Governor
4 Deputy Governors of the Reserve Bank
4 Directors nominated by the central government, one from each of the four Local
Boards as constituted under Section 9 of the Act
10 Directors nominated by the central government
2 government officials nominated by the central government
The Central Board is assisted by three committees:
The Committee of the Central Board (CCB)
The Board for Financial Supervision (BFS)
The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS)
Functions of RBI
Monetary Authority
The Reserve Bank of India being the central bank of the country is the monetary
authority of India and the sole authority vested with the power to issue currency notes,
regulate the supply of currency and credit in the economy to secure monetary and
price stability.
Regulate & Supervise Financial Stability and Financial inclusion
It is also the responsibility of RBI to regulate & supervise the banking sector with an
eye on securing financial stability and financial inclusion.
Currency Management
Currency Management is the process of managing the life cycle of the notes, which
includes:
Assessing the printing requirement of various denominations of notes,
Placing indents with the note printing presses,
Supplying and distributing adequate quantity of currency throughout the country
Ensuring the quality of banknotes in circulation by continuous supply of clean notes
and timely withdrawal of soiled notes.
Section 23 of the RBI Act, 1934, had mandated that the function of issuance of
banknotes (above 1 Rupee) is to be conducted by the RBI through a separate
department called the Issue Department.
Foreign Exchange Management
The Reserve Bank oversees the foreign exchange market in India. It
supervises and regulates it through the provisions of the 
Foreign Exchange Management Act (FEMA), 1999.
Banker to Banks
RBI also act as a banker to banks and Governments by maintaining their
accounts and carrying out transactions on their behalf as well as providing
them banking services.
Banker to Government
Managing the Government’s banking transactions is one of the key functions
of the RBI. Like individuals, businesses and banks, Governments too need a
banker to carry out their financial transactions in an efficient way, including
the raising of resources from the public. Since its inception, the RBI has
undertaken the traditional central banking function of managing the
Government’s banking transactions. The central bank also serves as an agent
and adviser to the Government.
Regulate and Supervise the financial system
Financial system in India is carried out by different regulatory
authorities. The Reserve Bank regulates and supervises the
major part of the financial system. The supervisory role of the
Reserve Bank involves commercial banks, Urban Co-
operative Banks (UCBs), certain Financial Institutions (FIs)
and Non-Banking Financial Companies  (NBFCs). Some of the
FIs, in turn, regulate and/or supervise other institutions in the
financial sector.
In addition to these, the Reserve Bank of India also represents
India at the International Monetary Fund (IMF), promotes the
growth of the economy, act as a lender of last resort to
commercial banks, strengthen and support small local banks
and encourage banks to open branches in rural areas, publish
economic data, etc.