Reserve Bank of India (RBI), India’s central banking institution. Reserve Bank was estabilished on April 1, 1935 in Calcutta under the provisions of Reserve Bank of India Act, 1934. Now, Central Office of RBI is permanently situated in Mumbai since 1937. Though originally privately owned, was nationalized in 1949. Now RBI is fully owned by Government of India.
Preamble of Reserve Bank of India
The Preamble of RBI describes the basic functions of 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.”
Organisation Structure and Constitution
RBI’s operations are governed by central board of directors. The 21 member central board of directors is appointed by the Government of India for a period of 4 years, according to the provisions of Reserve Bank of India Act.
Official Directors –
- Governor and Four Deputy Governors.
Non Official Directors –
- Nominated by Government : 10 Directors from various fields and two government Officials
- Others : 4 Directors from four local boards
Main Role and Functions of RBI in Indian Banking System
Here are the main roles and functions of Reserve Bank of India in Indian Banking System:
Monetary Policy –
- Formulates, implements and monitor the monetary policy.
- Objective : maintaining price stability while keeping in mind the objective of growth.
Regulator and Supervisor of the Financial System –
Prescribes broad parameters of banking operations within which the country’s banking and financial system functions.
Objective: maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public.
Regulator and supervisor of the Payment System –
- Authorises setting up of payment systems
- Prescribes standards for working of the payment system
- Policies for encouraging the movement from paper-based payment systems to electronic modes of payments.
- Setting up of the regulatory framework of newer payment methods.
- Enhancement of customer convenience in payment systems.
- Improving security and efficiency in modes of payment.
Manager of Foreign Exchange –
RBI manages the Foreign Exchange Management Act, 1999, to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
Issuer of Currency –
RBI enjoy the sole right to issue the currency notes of various denominations except ₹ 1/- note which is issued by ministry of finance. It also exchanges or destroys currency and coins not fit for circulation. RBI follows Minimum Reserve System(MRS) from 1956 onwards. RBI keep ₹ 200 crore comprising of gold coin, bullion and foreign exchange reserve under MRS. Out of ₹ 200 crores, ₹ 115 crore should be in the form of Gold and remaining in the foreign currencies.
Developmental Role –
RBI also perform developmental functions like setting up of institutions like NABARD, IDBI, SIDBI, NHB etc to support national objective.
Banker to the Government –
RBI perform merchant banking functions for the central and state governments ; also act as their banker. It also manages the public debt of the Government.
Banker to Banks –
RBI also maintain the banking accounts of all scheduled banks; act as their banker. RBI also lends money to all commercial banks operating in the country.
Subsidiaries of RBI
RBI has following fully owned subsidiaries also :
- Deposit Insurance and Credit Guarantee Corporation of India (DICGC)
- Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL)
- National Housing Board (NHB)
- Reserve Bank Information Technology Private Limited (ReBIT)