Major Provisions of Reserve Bank of India Act, 1934
Reserve Bank of India Act, 1934 was enacted on 6 March, 1934 to constitute the Reserve Bank of India. This law commended from April 1, 1935. It provides framework for the supervision of banks and other related matters.
Section 3 of the RBI act provides for establishment of Reserve Bank of India for taking over the management of the currency from Central Government and of carrying on the business of banking in accordance with the provisions of this Act.
Section 4 of the RBI Act defines the capital of RBI which is Rs. five crore.
Section 7 of the RBI Act empowers the central government to issue directions in public interest from time to time to the bank in consultation with RBI Governor. This section also provides power of superintendence and direction of the affairs and business of RBI to Central Board of Directors.
This section deals with the functioning of RBI. . The RBI can accept deposits from the central and state governments without interest. It can purchase and discount bills of exchange from commercial banks. It can purchase foreign exchange from banks and sell it to them. It can provide loans to banks and state financial corporations. It can provide advances to the central government and state governments. It can buy or sell government securities. It can deal in derivative, repo and reverse repo.
This section describes emergency loans to banks.
This section assigns RBI the duty of being banker to the central government and manage public debt.
This section grants power to RBI to issue the currency
This section has provision that highest denomination note could be ₹10,000
This section empowers the RBI to form laws concerning the exchange of damaged and imperfect notes
This section provides that in India RBI and central government only can issue and accept promissory notes that are due on request
This section provides that every scheduled bank need to hold an average daily balance with the RBI
Definition of commercial banks
The RBI defines the scheduled banks which are mentioned in the 2nd Schedule of the Act. These are banks which have paid up capital and reserves above 5 lakh.