The Reserve Bank of India (RBI), as the central banking institution of India, is the backbone of the Indian financial system. As the custodian of the country’s economic and financial stability, it plays a crucial role in India’s economic development and smooth functioning of the entire banking sector. This article of NEXT IAS aims to study in detail the Reserve Bank of India (RBI), its origin, evolution, structure, functions, and more.
Some of its major objectives can be seen as follows:
The Reserve Bank of India was established to tackle the economic turmoil that occurred after World War-I. The timeline of origin and evolution of the Reserve Bank of India (RBI) can be seen as follows:
| Year | Event |
|---|---|
| 1926 | The 1926 Royal Commission on Indian Currency and Finance, also known as the Hilton Young Commission, recommended setting up a Central Bank for India. |
| 1934 | The Central Legislative Assembly accepted the recommendation and passed the Reserve Bank of India Act, 1934, which provides the statutory basis for the functioning of the Bank. |
| 1935 | As per the provision of the RBI Act, the RBI was established in Calcutta and commenced its operations on 1st April, 1935. |
| 1937 | In 1937, the RBI was permanently moved from Calcutta to Mumbai, where its current Central Office is located. |
| 1949 | In 1949, the RBI, which was held by private stakeholders till now, was nationalized. |
Note: India was the first British colony to have its own Central Bank.
The Reserve Bank of India (RBI), as established in 1935, was, initially, a privately owned entity. It meant that its share capital was divided into shares, owned by private individuals and institutions.
However, later, the Government of India passed the Reserve Bank of India (Transfer to Public Ownership) Act, 1948. As per its provisions, the ownership of the Reserve Bank of India was transferred from private entities to the government. This is called the nationalization of the RBI, which transformed it from a privately owned entity to a fully government-owned entity.
After nationalization in 1949, it emerged as the Central Bank of India and no more remained a ‘bank’ in the technical sense.
Various branches and offices of RBI can be seen hierarchically as follows:
The Central Office of the Reserve Bank of India is the main office and headquarters of the RBI. This is the office where the RBI Governor sits and the whole organization of the RBI is controlled from.
The RBI has 4 Zonal Offices, located in
The Reserve Bank of India (RBI) has about 22 regional offices, which play a crucial role in the functioning of the RBI at the regional level. These offices are mostly located in the capital cities of the states.
The RBI has other offices in prominent cities across India, which perform specific tasks like:
The structure of the Reserve Bank of India (RBI) can be seen as follows:
The Central Board of Directors is the main committee of the Reserve Bank of India, responsible for its overall control and direction. It is a 21-member body, comprising the following members:
| – The first Governor of the RBI was Sir Osborne Smith (1935-37). – The first Indian Governor of the RBI was C.D. Deshmukh (1943-49) – Manmohan Singh is the only Prime Minister of India who, till now, has also served as the Governor of the RBI. – The emblem of the RBI is a Tiger and a Palm Tree. – The Reserve Bank of India has 4 fully owned subsidiaries: a. Deposit Insurance and Credit Guarantee Corporation (DICGC) b. Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL) c. Reserve Bank Information Technology Private Limited (ReBIT) d. Indian Financial Technology and Allied Services (IFTAS) |
Major functions of the RBI can be seen under the following 2 heads:
Monetary Functions of the Reserve Bank of India include those functions which are concerned with money and money supply in the economy. Major functions coming in this category include:
The General Functions of the RBI include functions related to general regulation and promotion of the banking system so as to maintain the health and growth of the banking system in the country. Major functions included in this category are as follows:
| – Currency Notes: Currency Notes are printed in 4 presses in India – Nasik (Maharashtra), Dewas (Madhya Pradesh), Mysore (Karnataka), and Salboni (West Bengal) a. Of these, Nasik and Dewas presses are owned by the Government of India; whereas, Mysore and Salboni presses are owned by the RBI through its wholly owned subsidiary Bharatiya Reserve Bank Note Mudran Ltd. (BRBNML). – Coins: Coins are minted in 4 mints located in Mumbai, Hyderabad, Calcutta and Noida. a. All the 4 mints are owned by the Government of India. – As per the Indian Coinage Act of 1906, Coins can be issued up to the denomination of ₹1000. – As per the RBI Act of 1934, Currency Notes can be issued up to the denomination of ₹10,000. – The ₹1 note is the only currency note which bears the signature of the Finance Secretary of the Government of India, and not of the Governor of the RBI. a. All other notes bear the signature of the Governor of the RBI. |
In 1957, the RBI adopted the Minimum Reserve System for issuing currency notes. As per this system, to issue money, the RBI maintains Gold and Foreign Currency Reserves of worth ₹200 crores as a backup.
Note: Out of this reserve, a minimum of ₹115 crores should be in Gold.
RBI, from time to time, conducts various surveys and publishes various reports to gauge the pulse of the economy. Some of the major publications of the RBI include:
Major components of the incomes and expenditures of the RBI can be seen under the following 2 heads:
Most part of the RBI’s income mainly comes from its operations in financial markets. They include:
Major components forming part of expenditures of the Reserve Bank of India include:
The RBI’s total expenditure is only about 1/7th of its total net income. The difference between RBI’s income and expenditure is known as RBI Surplus.
Out of its total surplus, RBI holds some amount to itself as equity capital to maintain its creditworthiness and pays the rest to the government.
The government is of the opinion that the Reserve Bank of India should pay more dividends. The reasoning given by the government is that the building up of buffers such as the Contingency Fund and Asset Reserve by the Central Bank has been far in excess of what is required to maintain creditworthiness.
The Reserve Bank of India, on the other hand, says that increasing the dividend payment to the government can prove to be inflationary as there will be more money in the market and may harm its major task of macroeconomic stability.
It also reasons that the surplus is used to cover a situation where the rupee appreciates against one or more of the currencies or if there is a decline in the rupee value of gold.
As the Central Bank of India, the role of the Reserve Bank of India is crucial in promoting financial stability and economic growth. Thus, it must have a significant degree of autonomy in its functioning. However, some factors seem to hamper the autonomy of the RBI. These factors the suggested way ahead are explained in the sections that follow.
The tussle between the Reserve Bank of India and the government can impact the image of India as a stable market as investors require long-term policy consistency. Thus it is necessary that the government should respect the mandate given to the Reserve Bank of India as a regulator of the banks. At the same time, the RBI must also understand that constitutionally it is a part of the government and not a completely independent body. Thus, both sides should maintain a fine balance so as to ensure the objectives of stable economic growth and welfare of the people.
The Reserve Bank of India (RBI) plays an indispensable role in India’s economic well-being. Its commitment to monetary stability, financial regulation, and inclusive growth ensures a strong foundation for the nation’s financial system. As India navigates an evolving economic landscape, the RBI’s continued vigilance and adaptability will be crucial in steering the country towards a prosperous future.
Shri Shaktikanta Das is serving as the current & 25th Governor of the RBI.
Yes, it is a statutory body. It was established under the Reserve Bank of India Act, 1934, which defines the RBI’s powers and functions.
The central office of the RBI, which functions as its headquarters, is located in Mumbai.
