The Reserve Bank of India is India’s central banking authority, which controls the monetary policy of the Indian rupee. In India the banking system is regulated by RBI in terms of the Reserve Bank of India Act, 1934 and Banking Regulation Act, 1949. In India, banking is defined in the Banking Regulation Act, 1949
a) It was established in 1st April 1935.
b) It was nationalized in 1949.
c) The first governor of RBI was Sir Osborne Smith.
d) The first Indian governor of RBI was Shri CD deshmukh.
e) RBI can issue note up to Rs. 10000. RBI doesn’t issue 1 rupee notes.
f) The head quarter of RBI is in MUMBAI
Roles & Functions of RBI:
- Monetary Authority
- Issuer of currency
- Banker and debt manager to government
- Banker to banks
- Regulator of the banking system
- Manager of Foriegn Exchange
- Maintaining Financial Stability
- Payment and Settlement Systems Regulator
- Development Role
The RBI controls the money supply, volume of bank credit and the cost of bank credit (via Bank Rate). The goal of monetary policy is to acheive low and stable inflation(2% to 6%) and promoting growth. Click Here for the Monetary Tools indepth explaination.
Issuer of currency
Under Section 22 of the Reserve Bank of India Act, RBI has sole right to issue currency notes of various denominations except one rupee notes. The One Rupee note is issued byMinistry of Finance and it bears the signatures of Finance Secretary, while other notes bear the signature of Governor RBI.
Banker and debt manager to government
RBI acts, as the banker for both central and state Govts. i.e. It provides them services of deposits, withdrawal of funds, making payments, transfer of funds and management of public debt.
RBI makes ways & means advances to central and state Govts. subject to certain limits on the amount overdrafts with a view to contain the fiscal deficit as decided by the Central Govt.
Banker to banks
All banks maintain account with RBI to facilitate transfer of funds and settle inter-bank transactions. RBI also changes-its bank rate to regulate the cost of bank credit and its volume indirectly. It also acts as the lender of the last resort for banks by rediscounting bills and refinance mechanism.
Manager of Foriegn Exchange
RBI is responsible for administration of FEMA Act, 1999. It is the duty of RBI to maintain the stability of the external value of Indian Rupee. RBI manages the Foreign exchange reserves of the country and maintains the reserves in gold and foreign securities issued by foreign Govts. and International Financial Institutions.
Payment and Settlement Systems Regulator
The Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), a sub-committee of the Central Board of the Reserve Bank of India is the highest policy making body on payment systems in the country. The Department of Payment and Settlement Systems of the Reserve Bank of India serves as the Secretariat to the Board and executes its directions. In India, the payment and settlement systems are regulated by the Payment and Settlement Systems Act, 2007
RBI ensures credit availability to the productive sectors of the economy establishing specialised financial institutions for development. Some of the institutions established by RBI include:
- Deposit Insurance & Credit Guarantee Corporation of India – DICGC
- National Bank for Agriculture and Rural Development – NABARD
- Export-Import Bank of India – EXIM