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Reserve Bank of India – RBI
- Concept of RBI came from the book, “The Problem of the Rupee: its Origin and its Solution” 1923, by Dr. B. R. Ambedkar.
- The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.
- It established based on the suggestions of “Royal Commission on Indian Currency & Finance” in 1926.
- This commission was also known as Hilton Young Commission.
- The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937.
- Central Office is where the Governor sits and where policies are formulated.
- RBI nationalised on 1st Jan 1949
- Financial year of RBI – 1st July to 30th June
- Palm tree and a Tiger is emblem of Reserve Bank of India.
- 1935 – First Governor of RBI was Sir Osborne Smith.
- 1943 – First Indian Governor of RBI was CD Deshmukh, he participated in Bretton Woods
- 2003 – 1st women deputy Governor of RBI was KJ Udeshi.
- Only Prime Minister who was the Governor of RBI was Manmohan Singh.
Central Board of Directors of RBI
- Central Board of Directors is the administrative apex body of the Reserve Bank of India.
- Total no. of members can be maximum 21
- Board is appointed by Government of India in keeping with section 8 of RBI Act.
- Section 7 empowers the government to supersede the RBI Board and issue directions to the central bank if they are considered to be “necessary in public interest”
- Director of the RBI Board cannot be
- a salaried government official (except specifically nominated member of Government)
- be adjudicated as insolvent or have suspended payments to creditors
- an officer or employee of any bank
- found lunatic or becomes of unsound mind
Official Directors of Reserve Bank of India
- Full-time directors
- 1 Governor and up to 4 Deputy Governors
- Governor and Deputy Governors hold office for max periods of 5 years
- Term of the governor may be fixed by the government at the time of his appointment
- They are eligible for reappointment or extension as per Section 8 (4) of the Reserve Bank of India Act.
- Appointment has been made based on the recommendation of the Financial Sector Regulatory Appointments Search Committee (FSRASC), headed by the Cabinet Secretary.
- Salaries and allowances determined by CBD, with approval of Central Government
- Governor can be removed by government of India.
Non-Official Directors of Reserve Bank of India
- Nominated by Government of India.
- Up to 10 Directors from various fields and 2 government Official
- 10 Directors hold office for 4 years, and government officials are to hold a term on RBI Board as long as the government want
- Other 4 Directors – one each from four local boards
Powers of Central Board of Reserve Bank of India
- Board exercises all powers and does all acts and things that are exercised by the Reserve Bank of India.
- Board recommend to the government for the design, form and material of bank notes and also when and where they can serve as legal tender.
Meeting of Central Board of Reserve Bank of India
- Governor has to call a Board meeting at least 6 times in a year, and at least 1 each quarter
- Meeting can be called if a min of 4 Directors ask Governor to call a meeting
- In absence of Governor, Deputy Governor authorised by him to vote for him and presides the Board meetings
- In the event of split votes, Governor has a 2nd, or deciding vote
Local Boards of Reserve Bank of India
- There are one local board for each four regions of the country in Mumbai, Calcutta, Chennai and New Delhi.
- It consists of five members each
- Local Boards are appointed by the Central Government
- It has a term of 4 years.
- It started in 2017
- It will enforce all laws to the banks or others as per surveillance from different departments of RBI
Functions of RBI
- Main functions of RBI are to formulate, implement and monitor the monetary policy for
- Maintaining price stability, keeping inflation in check
- Ensuring adequate flow of credit to productive sectors
Regulator & Administrator of the Financial System
- Reserve Bank of India controls the monetary supply in India.
- It monitors economic indicators like the GDP, CPI etc.
- Decide the design of the rupee banknotes as well as coins.
- RBI is to undertake supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies.
- Banking Ombudsman Scheme has been formulated by Reserve Bank of India.
- RBI lays out parameters of banking operations within which all the banking and financial system functions for-
- maintaining public confidence in the system
- protecting depositors’ interest
- providing cost-effective banking services to the public
Managing Foreign Exchange
- Reserve Bank of India manages Forex under the FEMA- Foreign Exchange Management Act, 1999.
- Facilitate external trade and payment
- Promote the development of foreign exchange market in India.
Issuer of Currency
- Reserve Bank of India is authorized to issue currency in India.
- The bank also destroys the same when they are not fit for circulation.
- All the money issued by the central bank is its monetary liability
- For printing of notes, Security Printing and Minting Corporation of India Limited (SPMCIL), a wholly owned company of the Government of India, has set up printing presses at Nashik, Maharashtra and Dewas, MP.
- Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL), also has set up printing presses in Mysore in Karnataka and Salboni in West Bengal.
- For the minting of coins, SPMCIL has four mints at Mumbai, Noida (UP), Kolkata and Hyderabad for coin production.
Developmental Functions of RBI
- Reserve Bank of India faces a lot of inter-sectoral and local inflation-related problems
- Key tools in this effort is Priority Sector Lending
- RBI work towards strengthening and supporting small local banks.
- Encourage banks to open branches in rural areas to include large section of society in banking network.
Regulator of the Payment & Settlement Systems
- Payment and Settlement Systems Act of 2007 (PSS Act) gives the RBI authority, including regulation and supervision, for the payment and settlement systems in the country.
- In this role, the RBI focuses on the development and functioning of safe, secure and efficient payment and settlement mechanisms.
- Two payment systems NEFT and RTGS managed by Reserve Bank of India.
Banker & Debt Manager to Government
- As a banker to the GoI, RBI maintains its accounts, receive payments into & make payments out of these accounts.
- Reserve Bank of India also helps GoI to raise money from public via issuing bonds and government approved securities.
- It works as a central bank where commercial banks are account holders and can deposit money.
- Reserve Bank of India maintains banking accounts of all scheduled banks.
- It is the duty of the Reserve Bank of India to control the credit.
- The RBI also advises the banks on various matters for example Corporate Social Responsibility.
Detection of Fake Currency
- Reserve Bank of India has launched a website to raise awareness among masses about fake notes
Reserves of RBI
Foreign Exchange Reserve (Forex Reserve) of India
- Foreign Currency Assets
- Special Drawing Rights (SDRs)
- Reserve Tranche Position
Special Drawing Rights (XDR)
- Special Drawing Rights is a supplementary foreign-exchange reserve assets defined and maintained by the International Monetary Fund (IMF).
- The XDR is the unit of account for the IMF, and is not a currency.
- Special Drawing Rights was created in 1969 to supplement a shortfall of preferred foreign-exchange reserve
- XDR basket now consists of
- USD 41.73%
- Euro 30.93%
- Renminbi (Chinese yuan) 10.92%
- Japanese yen 8.33%
- British pound 8.09%
Reserve Tranche Position (RTP)
- It is the difference between a member’s quota and the IMF’s holdings of its currency
Asset Development Fund
- Asset Development Fund was created in 1997-98
- To meet the internal capital expenditure and
- New investments in its subsidiaries and associate institutions
Currency & Gold Revaluation Reserve (CGRA)
- The CGRA is meant to cover a situation where
- Rupee appreciates against one or more of the currencies in the basket
- There is a decline in the rupee value of gold
- The basket has several currencies ranging from the dollar to the euro and the yen.
- The level of CGRA now covers about a quarter of the total currency reserves of the Reserve Bank of India.
Contingency Fund Reserve of RBI
- It used to cover depreciation in the value of the RBI’s holdings of government bonds domestic and foreign If yields rise and their prices fall.
- To cover expenses from extraordinary events such as demonetisation, money market operations and currency printing expenses in a year of insufficient income
- This reserve supports the mother of all guarantees – central bank’s role as the lender of the last resort
- It covers the deposit insurance for Deposit Insurance and the Credit Guarantee Corporation (DICGC) a subsidiary of Reserve Bank of India.