RBI - Know About Reserve Bank of India

Reserve Bank of India (RBI) is India’s central bank. It controls the monetary policy concerning the national currency, the Indian rupee. The basic functions of the RBI are the issuance of currency, to sustain monetary stability in India, to operate the currency, and maintain the country’s credit system.  

Latest Update about RBI:

• On 16th February 2021, RBI has announced an expert committee on primary urban cooperative banks. The chairman of the committee is NS Vishwanathan. (Get the list of committees with their purpose in the linked article for quick revision for UPSC.)
• On 5th February 2021, RBI Monetary Policy (2021-22) was announced. The central bank kept the Repo Rate at 4 percent while projected the GDP growth in Fiscal Year (FY) 2022 at 10.5 percent. (Understand Cash Reserve Ration, Repo Rate and Reserve Repo Rate in the linked article.)

Knowing about RBI will help IAS Exam aspirants deal with other topics related to UPSC Indian Economy. This article will hence provide details about RBI and its functioning.

What is RBI?

RBI is an institution of national importance and the pillar of the surging Indian economy. It is a member of the International Monetary Fund (IMF). 

• The concept of Reserve Bank of India was based on the strategies formulated by Dr. Ambedkar in his book named “The Problem of the Rupee – Its origin and its solution”.
• This central banking institution was established based on the suggestions of the “Royal Commission on Indian Currency & Finance” in 1926. This commission was also known as Hilton Young Commission.
• In 1949, the Reserve Bank of India was nationalized and became a member bank of the Asian Clearing Union.
• RBI regulates the credit and currency system in India.
• The chief objectives of the RBI are to sustain the confidence of the public in the system, protect the interests of the depositors, and offer cost-effective banking services like cooperative banking and commercial banking to the people.

Reserve Bank of India (RBI) – Timeline

The RBI is an important tool in the development strategy of the Indian government. UPSC has asked several questions regarding RBI functions, objectives, monetary regulations, etc., especially in UPSC Prelims. One of the things to know about RBI is its timeline which is provided in the table below:

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.”

Functions of Reserve Bank of India

Reserve Bank of India works as:

Monetary Authority

• Implementation of monetary policies.
• Monitoring the monetary policies
• Ensuring price stability in the country considering the economic growth of the country

Also, read about the Monetary Policy Committee (MPC) and know more about this six-member committee.

Regulator and Administrator of the Financial System

• The RBI determines the comprehensive parameters of banking operations.
• These methods are responsible for the functioning of the country’s banking and financial system. Methods such as:
  • License issuing
  • Liquidity of assets
  • Bank mergers
  • Branch expansion, etc.

Managing Foreign Exchange

• RBI manages the FOREX Reserves of India.
• It is responsible for maintaining the value of the Rupee outside the country. 
• It aids foreign trade payment. 

Issuer of currency

• The Reserve Bank of India is responsible for providing the public with a sufficient supply of currency notes and coins. 
• The quality of currency notes and coins is also taken care of by the RBI.
• RBI is in charge of issuing and exchanging of currency and coins. 
• Also, the destruction of currency and coins that are not fit for circulation.

RBI’s Developmental role

• Promotional functions that support national objectives are organized by RBI that encourage rural and agricultural economic development.
• The RBI will regularly issue directives to the commercial banks to lend loans to small-scale industrial units. 

Composition of RBI

• Reserve Bank of India is controlled by a central board of directors. The directors are appointed for a 4-year term by the Government of India in keeping with the Reserve Bank of India Act.
• The Central Board consists of:
  • Governor 
  • 4 Deputy Governors
  • 2 Finance Ministry representatives
  • 4 directors to represent local boards headquartered at Mumbai, Kolkata, Chennai, and New Delhi
• The executive head of RBI is Governor.
• The Governor is accompanied by 4 deputy governors.
• The First Governor of RBI was Sir Osborne Smith and the First Indian Governor of RBI was C D Deshmukh.
• The First woman Deputy Governor of RBI was K J Udeshi.
• The only Prime Minister who had been the Governor of RBI was Manmohan Singh.

The current governor of RBI (2021) is Shaktikanta Das. Get the list of RBI Governors in the linked article.

Zonal Offices

• RBI has four zonal offices: New Delhi for North, Chennai for South, Kolkata for East, and Mumbai for West.
• The Reserve Bank of India has 19 regional offices and 11 sub-offices at present.
• The bank has two training colleges for its officers:
  • Reserve Bank Staff College at Chennai
  • College of Agricultural Banking at Pune.

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