The Reserve Bank of India (RBI) is the apex financial institution of the country’s financial system. It is entrusted with the task of control, supervision, promotion, development and planning.
The Reserve Bank of India influences the management of commercial banks through its various policies, directions and regulations. Its role in bank management is quite unique. It performs the four basic functions such as planning, organizing, directing and controlling in laying a strong foundation for the functioning of commercial banks.
The Reserve Bank of India is India’s central bank. It came into existence on 1st April 1935 under the Reserve Bank of India Act, 1934.
Origin of the Reserve Bank of India
Strategic efforts were made to establish a central bank in India. Warren Hastings made the earliest attempt, when he was acting as the Governor of Bengal in 1773. He recommended for the formation of “General Bank in Bengal and Bihar“. The Chamberlin Commission report in 1913 also raised the issue of the founding of a central bank for the country. Based on this report, Professor J.M. Keynes formulated the first comprehensive plan for an Indian central bank. However, Keynes’ plan did not come into effect, on account of the outbreak of the First World War.
The Imperial Bank of India was set up in 1921 by amalgamating three Presidency Banks, which performed a few central banking functions. However, primarily it remained as a commercial bank. The Imperial Bank served as a banker to the Government and in some capacity as the bankers’ bank till the establishment of the Reserve Bank of India.
The publication of a White Paper on Indian Constitutional reforms raised the issue of starting a central bank in India again. Accordingly a fresh bill to this effect was introduced in the Indian Legislative Assembly on September 8, 1933. The bill was passed and received the assent of the Governor-General on March 6, 1934 and became the RBI Act, 1934. In accordance with the Act, the Reserve Bank of India was constituted and it commenced operations from April 1, 1935.
Objectives of the Reserve Bank of India
The Preamble to the Reserve Bank of India Act, 1934 spells out the objectives of the Reserve Bank as:
to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.
Besides it has other objectives, which can be listed out as below.
1. To remain free from political influence and be in successful operation for maintaining financial stability and credit.
2. To discharge purely central banking functions in the Indian money market, such as acting as the note-issuing authority, bankers’ bank and banker to Government, and to promote the growth of the economy.
3. To assist the planned process of development of the Indian economy.
Organization of the Reserve Bank of India
The Reserve Bank of India was originally established as a shareholders’ bank with a share capital of Rs.5 crores, divided into 5 lakhs fully paid-up shares of Rs.100 each. When the bank was nationalized in 1949, the entire share capital was acquired by the Central Government by compensating the shareholders.
Management of the Reserve Bank of India
The general superintendence and direction of the affairs of the Reserve Bank of India are vested in the Central Board of Directors, which consists of 20 members as detailed below:
- A Governor and Four Deputy Governors appointed by the Central Government,
- Four Directors nominated by the Central Government,
- Ten other Directors, and
- One Government official nominated by the Central Government.
The organizational structure of the RBI can be pictorially represented in the image below .
Governor of the Reserve Bank of India acts as the Chairman of the Central Board of Directors of the Bank and its chief executive authority. The Governor can exercise all the powers, which can be exercised by the Bank under the Act. However, his powers subject to the regulations made by the Central Board of Directors from time to time. In the performance of his duties, the Deputy Governors and the Executive Directors assist him. Each Deputy Governor is responsible for certain specific operations of the Bank. The Governor and the Deputy Governors are appointed by the Central Government for a period not exceeding 5 years. They are eligible for reappointment. They are full-time officers of the Bank.
The 10 directors who are nominated by the Central Government hold office for a period of 4 years. The Act provides for their retirement by rotation and every year two directors shall retire. However, the retiring director is eligible for re-election.
There are Local Boards for four regions of the country such as Western, Eastern, Northern and Southern regions. The head quarters of the Local Hoards are situated at Mumbai, Kolkatta, Chennai and New Delhi. Each Local Board consists of five members. All the members are appointed by the Central Government. The members should represent, as far as possible, territorial and economic interests and the interests of cooperative and indigenous banks.
The members of the Local Board are appointed for a period of four years. They are eligible for reappointment. They elect from among themselves one person as the Chairman of the Board.
The Central Board of Directors should meet at least six times in a year and not less than once in a quarter. Deputy Governors and the official director may attend the meetings of Board but they have no authority to vote. A Deputy Governor may exercise the right to vote, if he is authorized to do so when the Governor is absent. In the absence of the Governor, the Deputy Governor discharges the duties of the Governor and has the right of control over the affairs of the Bank. The Central Office of the Reserve Bank is located in Mumbai.
Departments of RBI
The various departments of the Reserve Bank of India are listed below:
1. Information Technology.
2. Economic Analysis and Policy.
3. Statistical Analysis and Computer Services.
4. Monetary Policy.
5. Premises Department.
6. Secretary’s Department.
7. Press Relations.
8. Exchange Control.
9. Rural Planning and Credit.
10. Financial Institutions Division.
11. Banking Supervision.
12. Banking Operations and Development.
13. Financial Companies.
15. Administration and Personnel Management.
16. Human Resources Development.
17. Deposit Insurance and Credit Guarantee Corporation.
19. Urban Banks.
20. Currency Management.
21. External Investments and Operations.
22. Expenditure and Budgetary Control.
23. Government and Bank Accounts.
24. Internal Debt Management Cell.
25. Industrial and Export Credit.