Understanding Reserve Bank of India (RBI)

Last Updated : Nov. 29, 2022, 5:32 p.m.

The Reserve Bank of India (abbreviated as ‘ RBI ’) is the central bank and the chief regulatory body of all financial bodies in India. The RBI is under the ownership of the Government of India, and it is solely responsible for controlling, maintaining, and issuing the currency, banking decisions, and other financial-related decisions in the country.

Along with taking all the financial decisions across the country, RBI is responsible for managing the country’s payments and settlement systems. Also, RBI is responsible for boosting the economy of our country.

In obedience to the Reserve bank of India Act of 1934, the RBI was founded in 1935. Since 1937, the bank has been permanently situated in Mumbai, Maharashtra. RBI is the central pillar for forwarding and boosting the Indian economy. RBI has been a member of the International Monetary Fund (IMF) since 27th December 1945.

Shri Shaktikanta Das is the current Governor of RBI . He serves as the 25th Governor of RBI and joined the position in December 2018. Before him, Shri Urjit Patel was the RBI Governor, who significantly demonetized 500 and 1000 rupees notes.

History of RBI

Interestingly, the first Governor of RBI was an Englishman by the name of Sir Osbourne Smith, a renowned banker. Sir Chintaman Dwarakanath Deshmukh, an Indian civil servant, was the first Indian appointed as the Governor of the RBI in 1943. He later served as the Finance Minister of India.

The concept of the Reserve Bank of India was formulated based on the strategies mentioned by Dr. Ambedkar in his book named “The Problem of Rupee”. The central banking institution was founded on 1st April 1935 to respond to the economic crisis and issues that emerged after the first world war. The bank was set up at the suggestion of the Hilton Young Commission, also known as the Royal Commission of Indian Currency and Finance.

The Preamble of the Reserve Bank of India describes the various functions of RBI , which are –

1. Issuing and regulating the banknotes in the country.
2. Maintaining the country’s reserves for financial stability
3. Operating the credit system and currency in the best interest of the country.

The central office of RBI was established in Calcutta (present-day Kolkata) in 1935. However, in 1937, it moved to Bombay (present-day Mumbai). RBI acted as the central bank of Burma (present-day Myanmar) till 1947. Moreover, even after the partition of Pakistan from India in 1947, the bank acted as the central bank for Pakistan till 1948.

Initially, the RBI was set up as a stakeholder bank, but after its nationalisation in 1949, RBI became fully owned by the Government of India.

Structure Of RBI

The Reserve Bank of India features a Board of directors, the bank’s main committee. The committee board consists of Governor and four deputy governors, each representing a region. There are four regional representations of RBI , New Delhi in the North, Chennai in the South, Mumbai in the West, and Kolkata in the East.

The organisational structure of the Reserve Bank of India is mentioned below in the hierarchical format-

1. Governor
2. Deputy Governors
3. Executive Directors
4. Principal Chief General Managers
5. Chief General Managers
6. General Managers
7. Deputy General Managers
8. Assistant General Managers
9. Managers
10. Assistant Managers
11. Support Staff

Functions of the RBI

The RBI is often considered the banker of all commercial banks in India. Thus, RBI is the parental controlling body of all banks across the whole of India. As the country’s central bank, the RBI plays a critical role in regulating and managing financial transactions. Some of the vital functions of the RBI are mentioned and discussed below:

Issuing Of Notes

The RBI ‘s most essential function is issuing coins and currency notes. All coins and notes are issued by RBI , except the one-rupee notes and coins, which the Ministry of Finance issues. All other currency except the one-rupee denomination has the signature of the Governor.

Serves As A Banker For the Government

RBI is responsible for taking care of all banking needs of the Indian Government. It maintains and operates the government’s deposit account, make payments and collect receipt on behalf of the Government. Moreover, RBI represents the Indian Government globally, as RBI has been a part of the International Monetary Fund since 1945.

Lends Money To The Bank

The RBI is known as the banker to all commercial banks. Whenever any bank is in a crisis, RBI helps them by lending money at a higher Rate of Interest to manage their financial breakdown situation.

Custodian Of Cash Reserves

All the commercial banks in India are required to maintain cash reserves, per RBI ‘s monetary policy.

Custodian Of Foreign Exchange Reserve

To deal with any crisis in the country, RBI needs to maintain a reserve of foreign currencies.

Controls the Credit

RBI controls the flow of money in India by introducing monetary policies for the banks and their customers. The RBI is responsible for tweaking the money supply to attain balance in situations like inflation, consumption, liquidity, etc.

FAQs