RESERVE BANK OF INDIA

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.

Preamble of RBI 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.”

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.

MAJOR PROVISIONS OF THE RESERVE BANK OF INDIA ACT, 1934

SECTION 2(e) – Scheduled Bank means a bank whose name is included in the Schedule II of the RBI Act, 1934.

SECTION 3 of the Act demonstrates the foundation of the Reserve Bank of India for taking over the administration of the money from the Central Government and of carrying on the matter of banking as per the provisions of this Act.

SECTION 7 engages the Central Government to issue directions in public interest occasionally to the bank in meeting with the RBI Governor. This part likewise gives intensity of administration and direction of the affairs and business of RBI to Central Board of Directors.

SECTION 17- The section manages the functioning of RBI. The RBI can accept deposits from the Center and the State governments without interest. It can buy and limit bills of the trade from commercial banks. It can buy foreign exchange from banks and offer it to them. It can give credits to banks and state monetary enterprises. It can give advances to the Central government and state governments. It can purchase or sell government securities. It can bargain in subordinate, repo, and invert repo.

FUNCTIONS OF RESERVE BANK OF INDIA

SECTION 20-21B– The Reserve Bank of India goes about as a banker to the Central government as well as the state governments. All things considered, it transacts all financial business of the govern­ment, which includes the receipt and payment of cash for the public authority and doing of its trade, settlement, and other financial tasks. Consequently, the government keeps its money balance on the current account deposits with the RBI. As the banker of the government, the RBI gives short-term credit to the government to meet any setbacks in its receipts over its payment. [1]As the banker of government, the RBI is likewise charged with the responsibility of dealing with the general public (i.e., the government) obligation/ debt. In the release of this duty, the RBI deals with all new issues of government advances, benefits the public debt outstanding, and attendants the market for securities of government.

SECTION 22- 29– RBI in India controls the progression of cash in the market. The primary target is to keep an eye on the credit system and dependent on it keep up the cash in the system. This is done with the goal that the deposits are maintained. Additionally, RBI is the sole position with regards to the printing of cash. This capacity of giving notes by RBI has numerous points of interest. They are:

  • It is anything but difficult to administer.
  • This aids in the consistency of the notes that are given.
  • It turns out to be anything but difficult to control and manage the credit that is within the framework.

SECTION 42– The RBI attempts the duty of controlling credit made by commercial banks. RBI utilizes two techniques to control the additional flow of cash in the economy. These strategies are quantitative and subjective procedures to control and direct the credit stream in the nation. At the point when RBI sees that the economy has adequate cash supply and it might cause an inflationary circumstance in the nation then it crushes the cash supply through its tight money related approach and the other way around.

SECTION 40- To keep the foreign exchange rates stable, the Reserve Bank purchases and sells foreign monetary standards and furthermore secures the nation’s foreign exchange reserves. RBI sells the foreign cash in the foreign exchange market when its stock reductions in the economy and the other way around. Presently, India has a Foreign Exchange Reserve of around US$ 487 bn.

Hence in short, 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 is not fit for circulation.

 

 

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