The Reserve Bank of India

The Reserve Bank of India (RBI) is India's central banking institution, which controls the monetary policy of the Indian rupee. It was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of India Act, 1934. [2] The share capital was divided into shares of ? 100 each fully paid which was entirely owned by private shareholders in the beginning. [3] Following India's independence in 1947, the RBI was nationalised in the year 1949. The RBI plays an important part in the development strategy of the Government of India.

It is a member bank of the Asian Clearing Union. The general superintendence and direction of the RBI is entrusted with the 21-member-strong Central Board of Directors—the Governor (currently Duvvuri Subbarao), four Deputy Governors, two Finance Ministry representative, ten Government-nominated Directors to represent important elements from India's economy, and four Directors to represent Local Boards headquartered at Mumbai, Kolkata, Chennai and New Delhi. Each of these Local Boards consist of five members who represent regional interests, as well as the interests of co-operative and indigenous banks.

Objectives and Role of BFS Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. The Board is required to meet normally once every month. It considers inspection reports and other supervisory issues placed before it by the supervisory departments. Focus of BFS is on: a) supervision of financial institutions b) consolidated accounting c) legal issues in bank frauds d) divergence in assessments of non-performing assets and e) supervisory rating model for banks.

Main Objectives of RBI are the following: 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 Exchange Control 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 Related Functions.

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 Owner and operator of the depository (SGL) and exchange (NDS) for government bonds Main objectives of RBI * To manage the monetary and credit system of the country. * To stabilizes internal and external value of rupee. * For balanced and systematic development of banking in the country. * For the development of organized money market in the country. * For proper arrangement of agriculture finance.

* For proper arrangement of industrial finance. * For proper management of public debts. * To establish monetary relations with other countries of the world and international financial institutions. * For centralization of cash reserves of commercial banks. * To maintain balance between the demand and supply of currency. 1935–1950 [pic] The old RBI Building in Nagpur The Reserve Bank of India was founded on 1 April 1935 to respond to economic troubles after the First World War.. It came into picture according to the guidelines laid down by Dr.

Ambedkar. RBI was conceptualized as per the guidelines, working style and outlook presented by Dr Ambedkar in front of the Hilton Young Commission. When this commission came to India under the name of “Royal Commission on Indian Currency & Finance”, each and every member of this commission were holding Dr Ambedkar’s book named “The Problem of the Rupee – It’s origin and it’s solution. ”[4] The Bank was set up based on the recommendations of the 1926 Royal Commission on Indian Currency and Finance, also known as the Hilton–Young Commission.

[5] The original choice for the seal of RBI was The East India Company Double Mohur, with the sketch of the Lion and Palm Tree. However it was decided to replace the lion with the tiger, the national animal of India. The Preamble of the RBI describes its basic functions to regulate the issue of bank notes, keep reserves to secure monetary stability in India, and generally to operate the currency and credit system in the best interests of the country. The Central Office of the RBI was initially established in Calcutta (now Kolkata), but was permanently moved to Bombay (now Mumbai) in 1937.

The RBI also acted as Burma's central bank, except during the years of the Japanese occupation of Burma (1942–45), until April 1947, even though Burma seceded from the Indian Union in 1937. After the Partition of India in 1947, the Bank served as the central bank for Pakistan until June 1948 when the State Bank of Pakistan commenced operations. Though originally set up as a shareholders’ bank, the RBI has been fully owned by the Government of India since its nationalization in 1949. [6] 1950–1960

In the 1950s, the Indian government, under its first Prime Minister Jawaharlal Nehru, developed a centrally planned economic policy that focused on the agricultural sector. The administration nationalized commercial banks[7] and established, based on the Banking Companies Act of 1949 (later called the Banking Regulation Act), a central bank regulation as part of the RBI. Furthermore, the central bank was ordered to support the economic plan with loans. [8] 1960–1969 As a result of bank crashes, the RBI was requested to establish and monitor a deposit insurance system.

It should restore the trust in the national bank system and was initialized on 7 December 1961. The Indian government founded funds to promote the economy and used the slogan Developing Banking. The Government of India restructured the national bank market and nationalized a lot of institutes. As a result, the RBI had to play the central part of control and support of this public banking sector. 1969–1985 In 1969, the Indira Gandhi-headed government nationalized 14 major commercial banks. Upon Gandhi's return to power in 1980, a further six banks were nationalized.

[5] The regulation of the economy and especially the financial sector was reinforced by the Government of India in the 1970s and 1980s. [9] The central bank became the central player and increased its policies for a lot of tasks like interests, reserve ratio and visible deposits. [10] These measures aimed at better economic development and had a huge effect on the company policy of the institutes. The banks lent money in selected sectors, like agri-business and small trade companies. [11] The branch was forced to establish two new offices in the country for every newly established office in a town.

[12] The oil crises in 1973 resulted in increasing inflation, and the RBI restricted monetary policy to reduce the effects. [13] 1985–1991 A lot of committees analysed the Indian economy between 1985 and 1991. Their results had an effect on the RBI. The Board for Industrial and Financial Reconstruction, the Indira Gandhi Institute of Development Research and the Security & Exchange Board of India investigated the national economy as a whole, and the security and exchange board proposed better methods for more effective markets and the protection of investor interests.

The Indian financial market was a leading example for so-called "financial repression" (Mackinnon and Shaw). [14] The Discount and Finance House of India began its operations on the monetary market in April 1988; the National Housing Bank, founded in July 1988, was forced to invest in the property market and a new financial law improved the versatility of direct deposit by more security measures and liberalisation. [15] 1991–2000 The national economy came down in July 1991 and the Indian rupee was devalued.

[16] The currency lost 18% relative to the US dollar, and the Narsimahmam Committee advised restructuring the financial sector by a temporal reduced reserve ratio as well as the statutory liquidity ratio. New guidelines were published in 1993 to establish a private banking sector. This turning point should reinforce the market and was often called neo-liberal. [17] The central bank deregulated bank interests and some sectors of the financial market like the trust and property markets.

[18] This first phase was a success and the central government forced a diversity liberalisation to diversify owner structures in 1998. [19] The National Stock Exchange of India took the trade on in June 1994 and the RBI allowed nationalized banks in July to interact with the capital market to reinforce their capital base. The central bank founded a subsidiary company—the Bharatiya Reserve Bank Note Mudran Limited—in February 1995 to produce banknotes. [20] Since 2000 The Foreign Exchange Management Act from 1999 came into force in June 2000.

It should improve the foreign exchange market, international investments in India and transactions. The RBI promoted the development of the financial market in the last years, allowed online banking in 2001 and established a new payment system in 2004–2005 (National Electronic Fund Transfer). [21] The Security Printing & Minting Corporation of India Ltd. , a merger of nine institutions, was founded in 2006 and produces banknotes and coins. [22] The national economy's growth rate came down to 5. 8% in the last quarter of 2008–2009[23] and the central bank promotes the economic development. [24].