February 6, 2021

Reserve Bank of India – RBI

By  Banking & Finance  0 Comments
Role and Functions of RBI
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Role of 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.
  • The Central Office is where the Governor sits and where policies are formulated.
  • RBI was nationalised on 1st Jan 1949
  • Financial year of RBI is from 1st July to 30th June.
  • From financial year 2021-22 it will be April-March.
  • A palm tree and a Tiger is the emblem of the Reserve Bank of India.
  • 1935 – 1st Governor of RBI was Sir Osborne Smith.
  • 1943 – 1st Indian Governor of RBI was CD Deshmukh, who participated in Bretton Woods Conference, in 1944.
  • 2003 – 1st woman deputy Governor of RBI was KJ Udeshi.
  • The only Prime Minister who was the Governor of RBI was Manmohan Singh.
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Central Board of Directors of RBI

  • The Central Board of Directors is the administrative apex body of the Reserve Bank of India.
  • The total no. of members can be a maximum 21.
  • The board is appointed by the Government of India in keeping with section 8 of the 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 the public interest”.
  • The director of the RBI Board cannot be
    • a salaried government official (except a specifically nominated member of the 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 period of 5 years.
  • The 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.
  • The 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 are determined by CBD, with the approval of the Central Government.
  • The governor can be removed by the government of India.
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Non-Official Directors of Reserve Bank of India

  • Nominated by the 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 the 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 recommends to the government 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.
  • The 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 over 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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Role & Functions of RBI

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Role & Functions of RBI

Monetary Authority

  • The main functions of RBI are to formulate, implement and monitor the monetary policy.
  •  Target of monetary policy
    • 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

  • The 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 formulated by Reserve Bank of India for consumer Complaints.
  • 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 except Rs.1 notes.
  • One rupee notes printed by the Ministry of Finance.
  • 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.
  • Security Printing and Minting Corporation of India Limited (SPMCIL), prints note for RBI.
  • It is a wholly owned company of the Govt. of India.
  • SPMCIL has 2 printing presses at
    • Nashik, Maharashtra
    • Dewas, MP
  • Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL), also has set up printing presses
    • Mysore in Karnataka
    • Salboni in West Bengal
  • SPMCIL has 4 mints for coins
    • Mumbai
    • Alipore (Kolkata)
    • Hyderabad
    • NOIDA (UP)
  • Govt. of India has the sole right to mint coins as per the Coinage Act, 1906.
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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.
  • RBI also helps GoI to raise money from public via issuing bonds and govt. 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 consists of
    • USD
    • Euro
    • Renminbi (Chinese yuan)
    • Japanese yen
    • British pound
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Reserve Tranche Position (RTP)

  • Reserve Tranche Position is the difference between a member’s quota and the IMF’s holdings of its currency.
  • It is an emergency account that IMF members can access without agreeing to conditions or service fee at any time.
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Asset Development Fund

  • Asset Development Fund was created in 1997-98.
  • It helps to meet the internal capital expenditure and new investments in RBI’s 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.
  • It used when yields rise and their prices fall.
  • To cover expenses from extraordinary events such as demonetization, 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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