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Economy

Reserve Bank of India

Reserve Bank of India

The Reserve Bank of India is India's Central Banking Institution, which controls the Monetary Policy of the Indian Rupee.

It is a member bank of the Asian Clearing Union.

Other name

Central bank.

Establishment

April 1, 1935. Established in accordance with the provisions of the Reserve Bank of India Act, 1934.

The original share capital was divided into shares of 100 each fully paid, which were initially owned entirely by private shareholders. Following India's independence on 15 - August - 1947, the RBI was nationalised in the year of 1 January 1949.

Head quarters

Shahid Bhagat Singh Marg, Mumbai.

The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937.

Organization

The general superintendence and direction of the RBI is entrusted with the 21-member Central Board of Directors:

  1. Central board of directors:

Members

    1. Official Directors(Full-time): Governor and not more than four Deputy Governors.
    2. Non-Official Directors(Nominated by Government): Ten Directors from various fields and 2 Finance Ministry representatives.
    3. Others: Four Directors - one each from four local boards headquartered at Mumbai, Kolkata, Chennai and New Delhi.

Appointment

The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.

Term

Appointed/nominated for a period of four years.

Functions

General superintendence and direction of the Bank's affairs.

  1. Local Boards:

One each for the four regions of the country in Mumbai, Calcutta, Chennai and New Delhi .

Members

 Five members

Appointment

Appointed by the Central Government.

Term

Four years

Functions

    1. To advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks
    2. To perform such other functions as delegated by Central Board from time to time.

Meetings:

  1. At the minimum of 6 meetings each year.
  2. At the minimum of 1 meeting each quarter.

Offices

19 regional offices, most of them in state capitals and 9 Sub-offices.

Subsidiaries

Fully owned

      1. Deposit Insurance and Credit Guarantee Corporation of India(DICGC).(to set up printing presses at Mysore in Karnataka and Salboni in West Bengal.)
      2. Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL).(in February 1995 to produce banknotes).
      3. 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.

Majority stake

NABARD

Functions of RBI

Monetary Authority

Formulates, implements and monitors the monetary policy.

Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.

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.

Developmental role

Performs a wide range of promotional functions to support national objectives.

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.

Board for Financial Supervision (BFS)

Board for Financial Supervision (BFS)

To perform Financial Supervision.

Established

November 1994 as a committee of the Central Board of Directors of the RBI.

Objective

To undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies.

Members

    1. Four Directors from the Central Board as members for a term of two years and is chaired by the Governor.
    2. The Deputy Governors of the Reserve Bank are ex-officio members.
    3. One Deputy Governor, usually, the Deputy Governor in charge of banking regulation and supervision, is nominated as the Vice-Chairman of the Board.

Functions

The BFS oversees the functioning of Department of Banking Supervision (DBS), Department of Non-Banking Supervision (DNBS) and Financial Institutions Division (FID) and gives directions on the regulatory and supervisory issues.

BFS Meetings

Once in every month.

It considers inspection reports and other supervisory issues placed before it by the supervisory departments.

Initiatives taken by BFS include:

    1. restructuring of the system of bank inspections
    2. introduction of off-site surveillance,
    3. strengthening of the role of statutory auditors and
    4. strengthening of the internal defences of supervised institutions.

Audit Sub-Committee

Objective

To upgrade the quality of the statutory audit and internal audit functions in banks and financial institutions.

Members

The audit sub-committee includes Deputy Governor as the chairman and two Directors of the Central Board as members.

Chronology

1935: Operations begin on April 1

1969: Nationalization of 14 major commercial banks (six more were nationalised in 1980)

1985: Financial market reforms begin with Sukhamoy Chakravarty and Vaghul Committee Reports

1993: Exchange rate becomes market determined

1949: Nationalisation of the Reserve Bank; Banking Regulation Act enacted

1966: Cooperative banks come under RBI regulation

1973: RBI strengthens exchange controls by amending Foreign Exchange Regulation Act (FERA)

1975: Regional Rural Banks set up

1991: India faces balance of payment crisis; pledges gold to shore up reserves. Rupee devalued

1994: Board for Financial Supervision set up

1997: Regulation of Non-Banking Finance Companies strengthened

1998: Multiple indicator approach for monetary policy adopted

2000: Foreign Exchange Management Act replaces FERA

2003: Fiscal Responsibility and Budget Management Act enacted

2004: Real Time Gross Settlement System commences. Transition to a full-fledged daily liquidity adjustment facility (LAF) completed. Market Stabilisation. Scheme (MSS) introduced to sterilize capital flows

2005: Focus on financial inclusion and increasing the outreach of the banking sector

2006: RBI empowered to regulate money, forex, G-sec and gold related securities market

2007: RBI empowered to regulate Payment System

2008/9: Pro-active efforts to minimize impact of global financial crisis

2010: Year-long Platinum Jubilee celebrations.

2011: Positioning RBI as a knowledge institution.