Reserve Bank of India: Organisation & Functions – Banking Awareness Notes

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 its main functions. 

Reserve Bank of India (RBI)

The Reserve Bank of India was established on April 1, 1935, in accordance with the provisions of the Reserve Bank of India Act, 1934.

The Central Office of the Reserve Bank was initially established in Kolkata but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated.

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

Preamble

The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as:

“to regulate the issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage; to have a modern monetary policy framework to meet the challenge of an increasingly complex economy, to maintain price stability while keeping in mind the objective of growth.”

Central Board

The Reserve Bank’s affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.

  • Appointed/nominated for a period of four years
  • Constitution:

Official Directors

      • Full-time: Governor and not more than four Deputy Governors

Non-Official Directors

      • Nominated by Government: ten Directors from various fields and two government Official
      • Others: four Directors – one each from four local boards

RBI Structure

The general superintendence and direction of the RBI are entrusted with the 21-member Central Board of Directors:

  1. The Governor,
  2. 4 Deputy Governors,
  3. 2 Finance Ministry representatives,
  4. 10 government-nominated directors to represent important elements of India’s economy, and
  5. 4 directors to represent local boards headquartered at Mumbai, Kolkata, Chennai, and New Delhi.
  6. 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 Shri Shaktikanta Das

The 4 Deputy Governors are:

  1. BP Kanungo
  2. Shri Mahesh Kumar Jain
  3. Dr. M. D. PatraShri
  4. M. Rajeshwar Rao

RBI Offices

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:

  1. North in New Delhi,
  2. South in Chennai,
  3. East in Kolkata, and
  4. 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 serves as a forum for regional banks and to deal with delegated tasks from the Central Board.

Main Functions

1. Monetary Authority:

  • Formulates, implements, and monitors the monetary policy.
  • Objective: maintaining price stability while keeping in mind the objective of growth.

2. Regulator and supervisor of the financial system:

  • Prescribes broad parameters of banking operations within which the country’s banking and financial system functions.
  • Objective: maintain public confidence in the system, protect depositors’ interest, and provide cost-effective banking services to the public.

3. Manager of Foreign Exchange

  • Manages the Foreign Exchange Management Act, 1999.
  • Objective: to facilitate external trade and payment and promote orderly development and maintenance of the foreign exchange market in India.

4. The issuer of currency:

  • Issues and exchanges or destroys currency and coins not fit for circulation.
  • Objective: to give the public an adequate quantity of supplies of currency notes and coins and in good quality.

5. Developmental role

  • Performs a wide range of promotional functions to support national objectives.

6. Regulator and Supervisor of Payment and Settlement Systems:

  • Introduces and upgrades safe and efficient modes of payment systems in the country to meet the requirements of the public at large.
  • Objective: maintain public confidence in payment and settlement system

7. Related Functions

  • Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.
  • Banker to banks: maintains banking accounts of all scheduled banks.

Hope this helps.

All the best!

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