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Reserve Bank of India – Basic Knowledge

History & Genesis of RBI

Prior to establishment of RBI, the functions of a central bank were virtually being done by the Imperial Bank of India . RBI started its operations from April 1, 1935. It was established via the RBI act 1934, so it is also known as a statutory body. Similarly, SBI is also a statutory body deriving its legality from SBI Act 1935.

RBI did not start as a Government owned bank but as a privately held bank without major government ownership. It started with a Share Capital of Rs. 5 Crore, divided into shares of Rs. 100 each fully paid up. In the beginning, this entire capital was owned by private shareholders. Out of this Rs. 5 Crore, the amount of Rs. 4,97,8000  was subscribed by the private shareholders while Rs. 2,20,000 was subscribed by central government.

After independence, the government passed Reserve Bank (Transfer to Public Ownership) Act, 1948 and took over RBI from private shareholders after paying appropriate compensation. Thus, nationalization of RBI took place in 1949 and from January 1, 1949, RBI started working as a government owned bank.

Hilton Young Commission

Hilton-Young Commission was the Royal Commission on Indian Currency and Finance set up by British Government of India in 1920s. In 1926, this commission had recommended to the government to create a central bank in the country. On the basis of mainly this commission, the RBI act was passed.

Original headquarters of RBI

Original headquarters of RBI were in Kolkata, but in 1937, it was shifted to Shahid Bhagat Singh Marg, Mumbai.

Structure & Functions of RBI

The core structure of RBI includes one Central Board of Directors, two Assistive bodies (BFS and BPSS), four local boards, 33 departments, 19 regional offices and 9 sub-offices.

Main functions of RBI

  • To work as monetary authority and implement its Monetary Policy
  • To serve as issuer of bank notes
  • Serve as banker to central and state governments
  • Serve as debt manager to central and state governments
  • Provide ways and means advances to the state governments
  • Serve as banker to the banks and lender of last resort (LORL) for them
  • Work as supervisor and regulator of the banking & financial system
  • Management of Foreign Exchange Reserves of the country
  • Support the government in development of the country

Structure and functions of Central Board of Directors in RBI

Central Board of Directors is the top decision making body in the RBI. It is made of official directors and Non-official directors.

The Governor and Deputy Governors are the official directors. There is on Governor and maximum 4 Deputy Governors; so maximum number of Official Directors in RBI’s Central Board of Directors is five. Governor and Deputy governors are appointed by Central Government. The tenure of service is maximum of 5 years or till the age of 62 whichever is earlier.

Further, there are 16 non-official directors in RBI. Out of them, there are four represent the local Boards located in Delhi, Chennai, Kolkata and Mumbai, thus representing 4 regions of India. Rest 12 are nominated by the Reserve Bank of India. These 12 personalities have expertise in various segments of Indian Economy.

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).

Assistive bodies in RBI

There are two assistive bodies for Central Board of Directors viz. Board of Financial Supervision (BFS) and Board for Payment and Settlement Systems (BPSS). Both of these are chaired by RBI Governor.

Local Boards

There are four local boards of RBI located in Chennai, Kolkata, Mumbai and New Delhi. These four local boards represent four regions of the country. Members and directors of local boards are appointed by central government for four-year terms. Each of these local boards consists of 5 members who represent regional interests, and the interests of co-operative and indigenous banks.

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