The Reserve Bank of India (RBI) is India’s central bank and regulatory body under the jurisdiction of Ministry of Finance, Government of India. It is responsible for the issue and supply of the Indian rupee and the regulation of the Indian banking system. It also manages the country’s main payment systems and works to promote its economic development. Bharatiya Reserve Bank Note Mudran is one of the specialised divisions of RBI through which it mints Indian bank notes and coins. RBI established the National Payments Corporation of India as one of its specialised division to regulate the payment and settlement systems in India. Deposit Insurance and Credit Guarantee Corporation was established by RBI as one of its specialised division for the purpose of providing insurance of deposits and guaranteeing of credit facilities to all Indian banks.
Until the Monetary Policy Committee was established in 2016, it also had full control over monetary policy in India. It commenced its operations on 1 April 1935 in accordance with the Reserve Bank of India Act, 1934. The original share capital was divided into shares of 100 each fully paid. Following India’s independence on 15 August 1947, the RBI was nationalised on 1 January 1949.
The overall direction of the RBI lies with the 21-member central board of directors, composed of: the governor; four deputy governors; two finance ministry representatives (usually the Economic Affairs Secretary and the Financial Services Secretary); ten government-nominated directors; and four directors who represent local boards for Mumbai, Kolkata, Chennai, and Delhi. Each of these local boards consists of five members who represent regional interests and the interests of co-operative and indigenous banks.
It is a member bank of the Asian Clearing Union. The bank is also active in promoting financial inclusion policy and is a leading member of the Alliance for Financial Inclusion (AFI). The bank is often referred to by the name ‘Mint Street’.
On 12th November 2021, the Prime Minister of India, Narendra Modi, launched two new schemes which aim at expanding investments and ensuring more security for investors. The two new schemes include the RBI Retail Direct Scheme and the Reserve Bank Integrated Ombudsman Scheme. The RBI Retail Direct Scheme is targeted at retail investors to invest easily in government securities. According to RBI, the scheme will allow retail investors to open and maintain their government securities account free of cost. The RBI Integrated Ombudsman Scheme aims to further improve the grievance redress mechanism for resolving customer complaints against entities regulated by the central bank.
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 Kolkata 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 nationalisation in 1949, the Reserve Bank is fully owned by the Government of India.
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.”
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.
Functions : General superintendence and direction of the Bank’s affairs
- Constituted for Western Area, Eastern Area, Northern Area and Southern Area.
- Consist of five members each.
- Members appointed by the Central Government.
- Member shall hold office for a term of four years.
Functions : To advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks; to perform such other functions as delegated by Central Board from time to time.
|Sitting Fees and Halting Allowance paid to the Directors of the Central Board, Members of the Local Board and Directors attending CCB/BFS/BPSS meetings
||Type of the Meetings
||Sitting Fees per meeting (in INR)
||Halting allowance per diem (in INR)
||Committee of the Central Board (CCB); Board For Financial Supervision (BFS) and Board for Payment & Settlement Systems (BPSS)
||Audit and Risk Management Sub-Committee (ARMS), Human Resource Management Sub-Committee; Building Sub-Committee, Information Technology Sub-Committee and Strategy Sub-Committee
|Note: In addition, the travel and stay expenses towards attending Board/Committee/ Sub-Committee meetings are also borne by the Reserve Bank of India.
The Reserve Bank of India performs the supervisory function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India under the Reserve Bank of India (Board for Financial Supervision) Regulations, 1994.
The primary objective of BFS is to undertake consolidated supervision of the financial sector comprising Scheduled Commercial and Co-operative Banks, All India Financial Institutions, Local Area Banks, Small Finance Banks, Payments Banks, Credit Information Companies, Non-Banking Finance Companies and Primary Dealers.
The Board is constituted by co-opting four Directors from the Central Board as Members and is chaired by the Governor. The Deputy Governors of the Reserve Bank are ex-officio members. One Deputy Governor, traditionally, the Deputy Governor in charge of supervision, is nominated as the Vice-Chairman of the Board.
In April 2018, a Sub-committee of the Board for Financial Supervision was constituted, under Para 11 & 12 of the Reserve Bank of India (Board for Financial Supervision) Regulations, 1994. The Sub-committee performs the functions and exercises the powers of supervision and inspection under the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949, in relation to Payments Banks, Small Finance Banks, Local Area Banks, small Foreign Banks, select scheduled Urban Co-operative Banks, select Non-Banking Financial Companies and Credit Information Companies. The Sub-committee is chaired by the Deputy Governor in charge of supervision and includes the three Deputy Governors and two Directors of the Central Board as Members.
The Board is required to meet normally once every month. It deliberates on inspection reports, periodic reviews related to banking and non-banking sectors and policy matters arising out of or having relevance to the supervisory functions of the Reserve Bank.
The BFS oversees the functioning of Department of Banking Supervision (DBS), Department of Non-Banking Supervision (DNBS) and Department of Co-operative Bank Supervision (DCBS) and gives directions on regulatory and supervisory issues.
Core Functions of Reserve Bank of India
Some of the initiatives taken by the BFS include:
Fine-tuning the supervisory processes adopted by the Bank for regulated entities;
Introduction of off-site surveillance system to complement the on-site supervision of regulated entities;
Strengthening the statutory audit processes of banks and enlarging the role of auditors in the supervisory process;
Strengthening the internal defences within supervised institutions such as corporate governance, internal control and audit functions, management information and risk control systems, review of housekeeping in banks;
Introduction of supervisory rating system for banks and financial institutions;
Supervision of overseas operations of Indian banks, consolidated supervision of banks;
Technical assistance programme for cooperative banks;
Introduction of scheme of Prompt Corrective Action Framework for weak banks;
Guidance regarding fraud risk management framework in banks;
Introduction of risk based supervision of banks;
Introduction of an enforcement framework in respect of banks;
Establishment of a credit registry in respect of large borrowers of supervised institutions; and
Setting up a subsidiary of RBI to take care of the IT requirements, including the cyber security needs of the Reserve Bank and its regulated entities, etc.
I. Acts administered by 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
- 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
- The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003
- The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993
- Formulates, implements and monitors 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.
Manager of Foreign Exchange
- Manages the Foreign Exchange Management Act, 1999.
- Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
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.
- Performs a wide range of promotional functions to support national objectives.
Regulator and Supervisor of Payment and Settlement Systems:
- Introduces and upgrades safe and efficient modes of payment systems in the country to meet the requirements of the public at large.
- Objective: maintain public confidence in payment and settlement system
- Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.
- Banker to banks: maintains banking accounts of all scheduled banks.
Has six training establishments
- Three, namely, RBI Academy, College of Agricultural Banking and Reserve Bank of India Staff College are part of the Reserve Bank.
- Others are autonomous, such as, National Institute for Bank Management, Indira Gandhi Institute for Development Research (IGIDR), Institute for Development and Research in Banking Technology (IDRBT)
For details on training establishments, please check their websites links for which are available in Other Links.
Fully owned: Deposit Insurance and Credit Guarantee Corporation of India (DICGC), Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL), Reserve Bank Information Technology Private Limited (ReBIT), Indian Financial Technology and Allied Services (IFTAS), Reserve Bank Innovation Hub (RBIH).
Branches and support bodies
The RBI has four regional representations: North in New Delhi, South in Chennai, East in Kolkata and West in Mumbai. The representations are formed by five members, appointed for four years by the central government and with the advice of the central board of directors serve as a forum for regional banks and to deal with delegated tasks from the Central Board.
It has two training colleges for its officers, viz. Reserve Bank Staff College, Chennai and College of Agricultural Banking, Pune. There are three autonomous institutions run by RBI namely National Institute of Bank Management (NIBM), Indira Gandhi Institute of Development Research (IGIDR), Institute for Development and Research in Banking Technology (IDRBT). There are also four zonal training centres at Mumbai, Chennai, Kolkata, and New Delhi.
The Board of Financial Supervision (BFS), formed in November 1994, serves as a CCBD committee to control the financial institutions. It has four members, appointed for two years, and takes measures to strength the role of statutory auditors in the financial sector, external monitoring, and internal controlling systems. The Tarapore committee was set up by the Reserve Bank of India under the chairmanship of former RBI deputy governor S. S. Tarapore to “lay the road map” to capital account convertibility. The five-member committee recommended a three-year time frame for complete convertibility by 1999–2000.
On 8 December 2017, Surekha Marandi, Executive Director (ED) of Reserve Bank of India, said RBI will open an office in the north-eastern state of Arunachal Pradesh
Bharatiya Reserve Bank Note Mudran
Bharatiya Reserve Bank Note Mudran was established by RBI for the purpose of minting Indian bank notes and coins.
Deposit Insurance and Credit Guarantee Corporation
Deposit Insurance and Credit Guarantee Corporation was established by RBI for the purpose of providing insurance of deposits and guaranteeing of credit facilities to all Indian banks.
National Payments Corporation of India
National Payments Corporation of India was established by RBI for the purpose of management of the payment and settlement systems in India.
Reserve Bank Information Technology
It has been set up by RBI to serve its Information Technology and cybersecurity needs and to improve the cyber resilience of the Indian banking industry.
Indian Financial Technology and Allied Services
It was established by RBI, mandated to design, deploy and support IT-related services to all Banks and Financial Institutions in the country and also to the Reserve Bank of India. It manages and operates the Financial messaging platform (SFMS) that comprises Real-Time Gross Settlement and National Electronic Funds Transfer. INFINET is also managed by IFTAS. The IFTAS has taken over the Indian FInancial NETwork (INFINET), Structured Financial Messaging System (SFMS) and the Indian Banking Community Cloud (IBCC) from the IDRBT, effective April 01, 2016.
Research Units of Reserve Bank of India
All India Financial Institutions separated from Reserve Bank of India
Functions of the Reserve Bank of India
The central bank of any country executes many functions such as overseeing monetary policy, issuing currency, managing foreign exchange, working as a bank for government and as a banker of scheduled commercial banks. It also works for overall economic growth of the country. The preamble of the Reserve Bank of India describes its main functions 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.”
The primary objective of RBI is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions, and non-banking finance companies.
The board is constituted by co-opting four directors from the Central Board as members for a term of two years and is chaired by the governor. The deputy governors of the reserve bank are ex-officio members. One deputy governor, usually the deputy governor in charge of banking regulation and supervision, is nominated as the vice-chairman of the board. The board is required to meet normally once every month. It considers inspection reports and other supervisory issues placed before it by the supervisory departments.
BFS through the Audit Sub-Committee also aims at upgrading the quality of the statutory audit and internal audit functions in banks and financial institutions. The audit sub-committee includes deputy governor as the chairman and two directors of the Central Board as members. The BFS oversees the functioning of the Department of Banking Supervision (DBS), the Department of Non-Banking Supervision (DNBS) and the Financial Institutions Division (FID) and gives directions on the regulatory and supervisory issues.
Regulator and supervisor of the financial system
The institution is also the regulator and supervisor of the financial system and prescribes broad parameters of banking operations within which the country’s banking and financial system functions. Its objectives are to maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective addressing of complaints by bank customers. The RBI controls the monetary supply, monitors economic indicators like the gross domestic product and has to decide the design of the rupee banknotes as well as coins.
Regulator and supervisor of the payment and settlement systems
Payment and settlement systems play an important role in improving overall economic efficiency . The Payment and Settlement Systems Act of 2007 (PSS Act) gives the Reserve Bank oversight authority, including regulation and supervision, for the payment and settlement systems in the country. In this role, the RBI focuses on the development and functioning of safe, secure and efficient payment and settlement mechanisms. Two payment systems National Electronic Fund Transfer (NEFT) and Real-Time Gross Settlement (RTGS) allow individuals, companies and firms to transfer funds from one bank to another. These facilities can only be used for transferring money within the country.
From December 16, 2019, one can transfer money online using the National Electronic Funds Transfer (NEFT) route 24×7, i.e., any time of the day and any day of the week. The Reserve Bank of India stated earlier in December 2019 that bank customers will be able to transfer funds through NEFT around the clock on all days including weekends and holidays from December 16. In RTGS, transactions are processed continuously 24×7.
Banker and debt manager to government
Just as individuals need a bank to carry out their financial transactions effectively and efficiently, governments also need a bank to carry out their financial transactions. The RBI serves this purpose for the Government of India (GoI). As a banker to the Government of India, the RBI maintains its accounts, receive payments into and make payments out of these accounts. The RBI also helps the GoI to raise money from the public via issuing bonds and government-approved securities. In Sep 2019, a decision at RBI directors meet was taken to change the RBI financial accounting year to March–April to align itself with the central government calendar instead of the current June–July year.
RBI issue taxable bonds for investments. From 1 July 2020, RBI is offering Floating Rate Savings Bonds, 2020 (Taxable) – FRSB 2020 (T). The interest on the bonds is payable semi-annually on 1 Jan and 1 July every year. The coupon on 1 January 2021 shall be paid at 7.15%. The Interest rate for next half-year will be reset every six months, the first reset being on 1 January 2021. There is no option to pay interest on cumulative basis.
Managing foreign exchange
The central bank manages to reach different goals of the Foreign Exchange Management Act, 1999. Their objective is to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
With the increasing integration of the Indian economy with the global economy arising from greater trade and capital flows, the foreign exchange market has evolved as a key segment of the Indian financial market and the RBI has an important role to play in regulating and managing this segment. The RBI manages forex and gold reserves of the nation.
On a given day, the foreign exchange rate reflects the demand for and supply of foreign exchange arising from trade and capital transactions. The RBI’s Financial Markets Department (FMD) participates in the foreign exchange market by undertaking sales/purchases of foreign currency to ease volatility in periods of excess demand for/supply of foreign currency.
Issue of currency
Other than the Government of India, the Reserve Bank of India is the sole body authorised to issue banknotes in India.
The bank also destroys banknotes when they are not fit for circulation. All the money issued by the central bank is its monetary liability, i.e., the central bank is obliged to back the currency with assets of equal value, to enhance public confidence in paper currency. The objectives are to issue banknotes and give the public adequate supply of the same, to maintain the currency and credit system of the country to utilise it in its best advantage, and to maintain the reserves.
The RBI maintains the economic structure of the country so that it can achieve the objective of price stability as well as economic development because both objectives are diverse in themselves.
For the printing of notes, RBI uses four facilities:
- The Security Printing and Minting Corporation of India Limited (SPMCIL), a wholly owned company of the Government of India, has printing presses at Nashik, Maharashtra and Dewas, Madhya Pradesh.
- The Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL), owned by the RBI, has printing facilities in Mysore, Karnataka and Salboni, West Bengal.
For the minting of coins, SPMCIL has four mints at Mumbai, Noida, Kolkata and Hyderabad for coin production.
Whilst coins are minted by, and ₹1 notes are issued by the Government of India (GoI), the RBI works as an agent of GoI for the distribution and handling of coins. RBI also works to prevent counterfeiting of currency by regularly upgrading security features of currency.
The RBI is authorised to issue notes with face values of up to ₹10,000 and coins up to ₹1,000 rupees.
New ₹500 and ₹2,000 notes were been issued on 8 November 2016. The old series of ₹1,000 and ₹500 notes were banned in 8 November 2016, and are no longer in use.
Earlier ₹1,000 notes have been discarded by the RBI.
Reserve Bank of India also works as a central bank where commercial banks are account holders and can deposit money. RBI maintains banking accounts of all scheduled banks. Commercial banks create credit. It is the duty of the RBI to control the credit through the CRR, repo rate, and open market operations. As the bankers’ bank, the RBI facilitates the clearing of cheques between the commercial banks and helps the inter-bank transfer of funds. It can grant financial accommodation to schedule banks. It acts as the lender of the last resort by providing emergency advances to the banks.
Regulator of the Banking System
RBI has the responsibility of regulating the nation’s financial system. As a regulator and supervisor of the Indian banking system it ensures financial stability & public confidence in the banking system. RBI uses methods like On-site inspections, off-site surveillance, scrutiny & periodic meetings to supervise new bank licences, setting capital requirements and regulating interest rates in specific areas. RBI is currently focused on implementing norms.
Detection of fake currency
To curb the counterfeit money problem in India, RBI has launched a website to raise awareness among masses about fake banknotes in the market. www.paisaboltahai.rbi.org.in provides information about identifying fake currency.
On 22 January 2014; RBI gave a press release stating that after 31 March 2014, it will completely withdraw from circulation of all banknotes issued prior to 2005. From 1 April 2014, the public will be required to approach banks for exchanging these notes. Banks will provide exchange facility for these notes until further communication. The reserve bank has also clarified that the notes issued before 2005 will continue to be legal tender. This would mean that banks are required to exchange the notes for their customers as well as for non-customers. From 1 July 2014, however, to exchange more than 15 pieces of ‘500 and ‘1000 notes, non-customers will have to furnish proof of identity and residence as well as show aadhar to the bank branch in which he/she wants to exchange the notes.
This move from the reserve bank is expected to unearth black money held in cash. As the new currency notes have added increased security features, they would help in curbing the menace of fake currency.
The central bank has to perform a wide range of promotional functions to support national objectives and industries. The RBI faces a lot of inter-sectoral and local inflation-related problems. Some of these problems are results of the dominant part of the public sector.
Key tools in this effort include Priority Sector Lending such as agriculture, micro and small enterprises (MSE), housing and education. RBI work towards strengthening and supporting small local banks and encourage banks to open branches in rural areas to include large section of society in banking net.
Related functions of the Reserve Bank of India
The RBI is also a banker to the government and performs merchant banking function for the central and the state governments. It also acts as their banker. The National Housing Bank (NHB) was established in 1988 to promote private real estate acquisition. The institution maintains banking accounts of all scheduled banks, too. RBI on 7 August 2012 said that Indian banking system is resilient enough to face the stress caused by the drought-like situation because of poor monsoon this year.
Custodian to foreign exchange
The Reserve Bank has custody of the country’s reserves of international currency, and this enables the Reserve Bank to deal with crisis connected with adverse balance of payments position.
CSD for G-Sec (Government Securities)
Public Debt Office (PDO) acts as CSD (Central Securities Depository) for G-Sec.
MIFOR (Mumbai Interbank Forward Outright Rate)
With LIBOR cessation in 2021, RBI is set to replace MIFOR with a new benchmark. MIFOR has LIBOR as one of the components and used in interest rate swap (IRS) markets.
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