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Banking Awareness Notes : Reserve Bank of India ( RBI )

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In this blog post, we would be covering one of the most important banking awareness topics, viz the Reserve Bank of India ( RBI ). We would be covering the structure of the central bank and it’s main functions.

The Reserve Bank of India (RBI) is India’s central bank and controls the monetary policy of the Indian rupee. It commenced its operations on 1 April 1935. The RBI was nationalized on 1 January, 1949.

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A central bank is a vital financial apex institution of an economy and the key objects of central banks may differ from country to country still they perform activities and functions with the goal of maintaining economic stability and growth of an economy

RBI : Structure

The general superintendence and direction of the RBI is entrusted with the 21-member Central Board of Directors: the Governor, 4 Deputy Governors, 2 Finance Ministry representatives, 10 government-nominated directors to represent important elements of India’s economy, and 4 directors to represent local boards headquartered at Mumbai, Kolkata, Chennai and New Delhi. Each of these local boards consists of 5 members who represent regional interests, the interests of co-operative and indigenous banks.

The Governor heads the RBI . The present governor of the RBI is economist Urjit Patel. The 4 Deputy Governors are :

BP Kanungo

S S Mundra

N S Vishwanathan

Viral Acharya.

Two of the four Deputy Governors are traditionally from RBI ranks and are selected from the Bank’s Executive Directors. One is nominated from among the Chairpersons of public sector banks and the other is an economist. An Indian Administrative Service officer can also be appointed as Deputy Governor of RBI and later as the Governor of RBI as with the case of Y. Venugopal Reddy. Other persons forming part of the central board of directors of the RBI are Dr. Nachiket Mor, Y C Deveshwar, Prof Damodar Acharya, Ajay Tyagi and Anjuly Duggal.

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The RBI has 4 zonal and 19 regional offices. The four zonal offices are located in : Chennai, Delhi, Kolkata & Mumbai.

The RBI has four regional representations: North in New Delhi, South in Chennai, East in Kolkata and West in Mumbai. The representations are formed by five members, appointed for four years by the central government and with the advice of the Central Board of Directors serve as a forum for regional banks and to deal with delegated tasks from the Central Board.

RBI : Main Functions

1. Issuer of Currency Notes

It is responsible for issuing currency notes. It brings uniformity in notes issue thus making it easier to control and regulate credit in accordance with the requirements in the economy.This also helps in keeping the faith of the public in the paper currency.

2. Banker to the Government

As banker to the government the Reserve Bank manages the banking needs of the government. It maintains and operates the government’s deposit accounts. It collects receipts of funds and makes payments on behalf of the government. It represents the Government of India as the member of the IMF and the World Bank.

3. Custodian of Cash Reserves of Commercial Banks

The commercial banks hold deposits in the Reserve Bank and the latter has the custody of the cash reserves of the commercial banks.The institution is also the regulator and supervisor of the financial system and prescribes broad parameters of banking operations within which the country’s banking and financial system functions. Its objectives are to maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public. It decides policy rates and reserve ratios.

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4. Custodian of Country’s Foreign Currency Reserves

The Reserve Bank has the custody of the country’s reserves of international currency, and this enables the Reserve Bank to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.  

5. Lender of Last Resort

The commercial banks approach the Reserve Bank in times of emergency to tide over financial difficulties, and the Reserve bank comes to their rescue though it might charge a higher rate of interest.

6. Central Clearance and Accounts Settlement

Since commercial banks have their surplus cash reserves deposited in the Reserve Bank, it is easier to deal with each other and settle the claim of each on the other through book keeping entries in the books of the Reserve Bank. The clearing of accounts has now become an essential function of the Reserve Bank

7. Controller of Credit

Since credit money forms the most important part of supply of money, and since the supply of money has important implications for economic stability, the importance of control of credit becomes obvious. Credit is controlled by the Reserve Bank in accordance with the economic priorities of the government.

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8. Detection of Fake Currency

Reserve Bank is expected to unearth black money held in cash. As the new currency notes (demonetization) have added security features, they would help in curbing the menace of fake currency.

Hope this helps.

All the best!


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