Reserve Bank of India

April 28th, 2011

In 1926, the Royal Commission on Indian Currency and Finance which is also known as the Hilton-Young Commission recommended the creation of a central bank. The idea was twofold:

To separate the control of currency and credit from the government
To augment banking facilities throughout the country.

The Reserve Bank of India Act of 1934 established the Reserve Bank as the banker to the central government and set in motion a series of actions culminating in the start of operations on April 1, 1935.

RBI was started with a Share Capital of ` 5 crore, divided into shares of ` 100 each fully paid up.
In the beginning, entire capital was owned by the private shareholders.
The British Government of India held shares of nominal value (` 2, 20,000) only.
The Central office of RBI initially was Kolkata. It was shifted to Mumbai in 1937.

But, since function of the Bank was of public nature, the RBI act of 1934 had provided the appointment of the Governor and two deputy Governors by the Central Government.

In 1949, RBI was nationalized and since then, its role and functions have undergone numerous changes—as the nature of the Indian economy has changed.

Important Landmarks

In 1926, the Royal Commission on Indian Currency and Finance recommended creation of a central bank for India.
In 1927, a bill to give effect to the above recommendation was introduced in the Legislative Assembly, but was later withdrawn due to lack of agreement among various sections of people.
In 1933, the White Paper on Indian Constitutional Reforms recommended the creation of a Reserve Bank. A fresh bill was introduced in the Legislative Assembly.
In 1934, the Bill was passed and received the Governor General's assent
In 1935, Reserve Bank commenced operations as India's central bank on April 1 as a private shareholders' bank with a paid up capital of rupees five crore.
In 1942 Reserve Bank ceased to be the currency issuing authority of Burma (now Myanmar).
In 1947, Reserve Bank stopped acting as banker to the Government of Burma.
In 1948, Reserve Bank stopped rendering central banking services to Pakistan.
In 1949, the Government of India nationalized the Reserve Bank under the Reserve Bank (Transfer of Public Ownership) Act, 1948.
In 1949, Banking Regulation Act was enacted.
In 1951, India embarked in the Planning Era.
In 1966, the Cooperative Banks came within the regulations of the RBI.
Rupee was devaluated for the first time.
In 1969, Nationalization of 14 Banks was a Turning point in the history of Indian Banking.
In 1973, the Foreign Exchange Regulation act was amended and exchange control was strengthened.
In 1974, the Priority Sector Advance Targets started getting fixed.
In 1975, Regional Rural Banks started
In 1985, the Sukhamoy Chakravarty and Vaghul Committee reports embarked the era of Financial Market Reforms in India.
In 1991, India came under the Balance of Payment crisis and RBI pledged Gold to shore up reserves. Rupee was devaluated.
In 1991-92, Economic Reforms started in India.
In 1993, Exchange Rate became Market determined.
In 1994, Board for Financial Supervision was set up.
In 1997, the regulation of the Non Banking Financial Companies (NBFC) got strengthened.
In 1998, Multiple Indicator Approach for monetary policy was adopted for the first time.
In 2000, the Foreign Exchange Management Act (FEMA) replaced the erstwhile FERA.
In 2002, The Clearing Corporation of India Ltd Started operation.
In 2003, Fiscal Responsibility and Budget Management Act (FRBMA) enacted.
In 2004, Liquidity Adjustment Facility (LAF) started working fully.
In 2004, Market Stabilization Scheme (MSS) was launched.
In 2004 Real Time Gross Settlement (RTGS) started working.
In 2006, Reserve Bank of India was empowered to regulate the money, forex, G-Sec and Gold related security markets.
In 2007, Reserve bank of India was empowered to regulate the Payment systems.
In 2008-09, world under the grip of Global Financial Slowdown, RBI Proactive.

India on the path of recovery. RBI plays a major role in developing India rising as a economic superpower.

Structure of RBI:

The Reserve Bank of India is wholly owned by the Government of India. Its structure is simply represented by the following:

Central Board of Directors
Committee of the central Board
Board for Financial Supervision
Board for Payment and Settlement Systems
Subcommittees of the Central Board
Local Boards.

Central Board of Directors

RBI's business is overseen by Central Board of Directors, which delegates the functions to its committees and sub-committees. The Central Board of Directors is made up of the following:

One Governor
Four Deputy Governors (4 is the maximum number)
Four Non-official Directors which are nominated by the Central Government. Each Non-official director represents the local Boards located in Delhi, Chennai, Kolkata and Mumbai representing 4 regions of India.
Ten Non-official Directors nominated by the Reserve Bank of India. These 10 personalities have expertise in various segments of Indian Economy.
One Representative of the central Government.

Please note:

The Central Board of Directors holds minimum 6 meetings every year. Out of which, at least 1 meeting every quarter is held. Though, typically the committee of the central board meets every week (Wednesday).

Board for Financial Supervision

The Board of Financial Supervision (BFS) was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India with an objective to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies.

The Financial Supervision functions are carried out by the Reserve Bank of India under the guidance of the Board for Financial Supervision (BFS).
Board for Financial Supervision is chaired by the Governor of Reserve Bank.

The chairman is supported by the 4 co-opted directors as members for a 2 year term. There is a Vice chairman of the board who is one of the Deputy Governors of the Bank. The Board meets typically every month.

BFS Regulates and supervises commercial banks, Non-Banking Finance Companies (NBFCs), development finance institutions, urban co-operative banks and primary dealers.

Some typical functions are:

Restructuring of the system of bank inspections
Introduction of off-site surveillance,
Strengthening of the role of statutory auditors and
Strengthening of the internal defenses of supervised institutions.

Board for Payment and Settlement Systems

Board for Payment and Settlement Systems was constituted by the Reserve Bank in 2005 as a Committee of its Central Board. The functions are to regulate and supervise the payment and settlement systems.

It is chaired by the Governor of Reserve Bank of India and its members are all the four Deputy Governors and two Non-Official Directors of the Central Board.

Some of the typical Functions of BPSS are as follows:

Lay down policies relating to the regulation and supervision of all types of payment and settlement systems.
Set standards for existing and future systems
Approve criteria for authorization of payment and settlement systems
Determine criteria for membership to these systems, including continuation, termination and rejection of membership.
With regard to the payment and settlement systems, BPSS is the highest policy making body in the country. Electronic, non-electronic, domestic and cross-border payment and settlement systems which affect the domestic transactions are regulated by BPSS.

Sub-committees of the Central Board

Includes those on Inspection and Audit; Staff; and Building. Focus of each subcommittee is on specific areas of operations.

Local Boards

Local Boards are located in Chennai, Kolkata, Mumbai and New Delhi and represent the country's four regions. Local board members, appointed by the Central Government for four-year terms, represent regional and economic interests and the interests of co-operative and indigenous banks

Departments, Regional Offices, Branches and Centers

Reserve Bank of India has 26 departments which focus on policy issues in the Reserve Bank's functional areas and internal operations. There are 27 regional offices of RBI and branches which work as its operational arms and customer interfaces, headed by Regional Directors. Smaller branches / sub-offices are headed by a General Manager / Deputy General Manager.

The training centers of RBI are as follows:

The Reserve Bank Staff College, Chennai
College of Agricultural Banking at Pune
Zonal Training Centres, located at regional offices, train non-executive staff.

Apart from that following are RBI funded Research Institutions:

National Institute of Bank Management (NIBM) : Pune,
Indira Gandhi Institute of Development Research (IGIDR) : Mumbai
Institute for Development and Research in Banking Technology (IDRBT) : Hyderabad.

RBI's Subsidiaries

RBI has following subsidiaries