Reserve Bank of India (RBI): About, History, Objectives and Functions
The Reserve Bank of India (RBI) is the Central Bank of India, also known as Banker’s Bank. The monetary and other banking policies of the Government of India are governed by the Reserve Bank. The Reserve Bank of India (RBI) was established on 1 April 1935 under the Reserve Bank of India Act 1934. The Reserve Bank of India has been in Mumbai since 1937.
The Reserve Bank of India is fully owned and operated by the Government of India.
Introduction to the Reserve Bank the basic functions of the Reserve Bank are described as:
– Controls the issue of notes
– Ensuring monetary stability in India
– Monetary policy framework is being upgraded to meet financial challenges.
The Reserve Bank of India is governed by a central board of directors, with a 21-member central board of directors appointed by the Government of India under the Reserve Bank of India Act.
HISTORY OF RBI
The Federal Reserve Bank of India or RBI is that the financial institution of the country. Central banks are relatively recent innovations, and most central banks, as we know them today, were established in the early 20th century.
The Federal Reserve Bank was formed on the recommendations of the Hilton Young Commission. The Reserve Bank of India Act, 1934 (II of 1934) provides the legal basis for the operations of a bank that commenced operations on 1 April 1935.
Bank was formed
i. Manage issue of notes
ii. Maintain reserves to ensure cash stability
iii. Operate the country’s credit and currency system for its benefit.
The bank has commenced operations from the Government of India, including Comptroller of Currency, Imperial Bank of India, Government Accounts and Public Debt. The existing currency offices at Kolkata, Bombay, Madras, Rangoon, Karachi, Lahore and Kanpur (Kanpur) became the branches of the issue department. The banking department has established offices in Kolkata, Bombay, Madras, Delhi and Rangoon.
Burma (Myanmar) left the Indian Union in 1937, but the Reserve Bank remained Burma’s central bank until the Japanese invasion and later in April 1947. After the partition of India, he acted as the central bank, until June 1948, when the State Bank of Pakistan was operational. The bank, originally formed as a shareholder, was nationalized in 1949.
An interesting feature of the Reserve Bank was that it was initially seen as a role in the context of the bank’s development, particularly in agriculture. As India began its project efforts, the bank’s development role became particularly noticeable in the sixties, when the RBI introduced the concept and practice of using finance to stimulate growth in many ways. The bank also played an important role in institutional development: – Deposit Insurance, Credit Guarantee Corporation of India, Unit Trust of India, Industrial Development Bank of India, National Bank of Agriculture and Rural Development, Discounts and Finance to the Country’s Economic Infrastructure.
With liberalization, the bank has shifted its focus to policy, monetary policy, and bank supervision, and regulation, payment system monitoring, and financial markets.
ORGANISATION OF RBI
The Central Board of Directors includes:
i. Direct Practical Director – Four Deputy Governors appointed/nominated by the Governor for four years
iii. Non-official directors – ten directors and two government officials from different fields.
Organization Structure of RBI –
Central Board of Directors
Principal Chief General Managers
Chief General Managers
Deputy General Managers
Assistant General Managers
OBJECTIVES OF RBI
The primary objective of the Reserve Bank is to initiate oversight and financing of the financial sector, which includes commercial banks, financial institutions, and non-banking finance companies (NBFCs).
Some of the major projects are:
i. Reorganization Bank Check
ii. Strengthen the role of statutory auditors in the banking system
Browse the video on List of All R.B.I Governors
LEGAL FRAMEWORK OF RBI
The Reserve Bank of India comes under the following laws:
i. Reserve Bank of India Act, 1934
ii. Public debt act, 1944
iii. Government Securities Regulations, 2007
iv. Banking Regulation Act, 1949
v. Foreign Exchange Management Act, 1999
vi. Securities and Restructuring of Financial Assets Implementation of the Security Interest Act, 2002
vii. Credit Information Companies (Regulation) Act, 2005
ix. Payment and Settlement Systems Act, 2007
FUNCTIONS OF RBI
Forms and implements national monetary policy.
Prices are stable in all regions and maintain growth targets.
Regulatory and supervisory
Set parameters for banks and financial functions of banking and financial systems.
Protect the interests of investors and provide financial and cost-effective banking to the public.
Foreign exchange management
Overseas Foreign Exchange Management Act, 1999.
Facilitate external trade and development of foreign exchange market in India.
Issuer of currency
The issuer, exchange or currency is destroyed and is not suitable for circulation.
Currency notes and coins are issued to the public at an adequate level.
Role of development
Promotes and implements promotional activities to support national banking and financial goals.
Provides banking solutions to central and state governments and acts as their banker.
Chief Bankers of all banks: Maintains banking accounts of all scheduled banks.
Reserve Bank Policies
Repo Rate:- Repo rate or repurchase rate is the benchmark interest rate given by RBI to all other banks in the short term. As repo rates rise, borrowing from the RBI becomes more expensive, so higher interest rates result in consumers or the public.
Reverse Repo Rate (RRR):- The reverse repo rate is a short-term lending rate and is borrowed by RBI from other banks. The Reserve Bank uses this method to reduce inflation when there is more money in the banking system.
Cash Reserve Ratio (CRR):- CRR, Cash Reserve Ratio is an essential part of the total deposits of any bank which should be kept in the Reserve Bank as liquid cash.
Statutory Liquidity Ratio (SLR):- Banks are required to maintain liquid assets in the form of gold and approved securities, setting aside the cash reserve ratio, this is called the Statutory Liquidity Ratio (SLR). Higher SLRs make it possible for banks to lend more.
Reserve Bank Annual Reports
Annual Report – An annual report is a legal report of the Reserve Bank issued every year. This report covers the evaluation and progress of the Indian economy. An overview of the economy, the performance of the Reserve Bank for that year, the Reserve Bank’s outlook and agenda for the next year along with the annual accounts of the Reserve Bank
Report on banking trend and progress in India – This document is an assessment of the policies and progress of the financial sector in the last year.
Lectures – The Reserve Bank has organized three annual lectures. Two of these lectures have been given by a former Governor of the Reserve Bank and a prominent economist.
Report on Currency and Finance – This report is documented and presented by the Reserve Bank of India officials and focuses on a specific topic and presents a detailed financial analysis of the issues related to the subject. Handbook of Statistics on the Indian Economy – This report is a major initiative by the Reserve Bank to improve data delivery. It is a repository of important data.
State Finance: A Study of the Budget – The report is an indispensable source of state-wise financial data, and provides an analytical data-driven view of the state of finance of state governments across India. These data inputs are used to analyze specific issues that are relevant.
Statistical tables related to banks in India – This annual publication contains comprehensive timeline data on Scheduled Commercial Banks (SCBs) of India. The report includes information on the balance sheet and performance indicators of each SCB in India. The journal also contains fragmented data sources on some essential elements of bank-wise, bank-group-wise and state-wise information.
Basic Statistical Returns – This is another annual data-based journal that provides complex information about scheduled commercial banks, sector-wise, state-wise and district-wise offices, employees, deposits and credits. This information reduces the population and loan requirements of each bank.
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