Reserve Bank of India – RBI

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  • 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.

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Reserve Bank of India RBI

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  • 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.
  • Though originally privately owned, since nationalization in 1949, the Reserve Bank of India is fully owned by the Government of India.
  • 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.

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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

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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.

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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

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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.

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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

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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.

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Enforcement Department

  • It started in 2017
  • It will enforce all laws to the banks or others as per surveillance from different departments of RBI

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Functions of RBI

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Functions of RBI

Monetary Authority

  • 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

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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

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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.

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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.

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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.

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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.

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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.

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Banker’s Bank

  • 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.

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Detection of Fake Currency

  • Reserve Bank of India has launched a website to raise awareness among masses about fake notes

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forex reserves of india Reserve Bank of India

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Reserves of RBI

Foreign Exchange Reserve (Forex Reserve) of India

  1. Foreign Currency Assets
  2. Gold
  3. Special Drawing Rights (SDRs)
  4. Reserve Tranche Position

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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%

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Reserve Tranche Position (RTP)

  • It is the difference between a member’s quota and the IMF’s holdings of its currency

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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

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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.

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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.

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