Reserve Bank
of India
Origin and Function
Lecture 4
Introduction
The Reserve Bank of India, abbreviated as the RBI, is the
Central Bank of India, meaning it is the apex body in the
Indian financial system.
It is under the Union Ministry of Finance.
It acts as a regulatory body, responsible for the regulation of
the Indian banking system as well as the control, issuing, and
maintaining money supply in the Indian economy.
Timeline: Key Events in the Origin of RBI
The 1926 Royal Commission on Indian
Currency and Finance, also known as the As per the provisions of the RBI Act, the The RBI, initially held by private
Hilton Young Commission, Reserve Bank of India (RBI) was stakeholders, was nationalized,
recommended the establishment of a established in Calcutta and commenced becoming fully owned by the
Central Bank for India. operations on April 1, 1935. Government of India.
1926 1934 1935 1937 1949
The Central Legislative Assembly passed The RBI's central office was permanently
the Reserve Bank of India Act, 1934, moved from Calcutta to Mumbai, where
providing the statutory basis for the it is currently located.
functioning of the Reserve Bank of India.
Nationalization of Reserve Bank of India (RBI)
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.
CBD
Governor
Deputy
Governors
Structure of RBI Executive Directors
Principal Chief General
Manager
Chief General Managers
General Managers
Deputy General Managers
Assistant General Managers
Managers
Assistant Managers
Support Staff
Key Facts about RBI
• 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)
Functions of Reserve Bank of India (RBI)
Monetary Functions - Monetary Functions of the Reserve Bank of India
include those functions which are concerned with money and money
supply in the economy.
General Functions - 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.
Function Description
The RBI has the monopoly on issuing currency notes except for the 1 Rupee
note and coins, which are issued by the Government of India but circulated
Issuer of Bank Notes by RBI.
Currency is issued under the Minimum Reserve System.
Acts as the banking agent and financial advisor to the Central and State
Governments.
Monetary
- Manages government accounts and treasuries.
Banker to the
- Keeps government deposits and lends interest-free for short-term.
Government
- Buys and sells Government Securities (G-Secs) on behalf of the
Functions government.
- Provides monetary and financial advice to the government.
RBI acts as the banker for all Scheduled Commercial Banks (SCBs).
- Maintains Cash Reserve Ratio (CRR).
Bankers’ Bank
- Provides financial assistance to banks against mortgaged securities.
- Rediscounts Bills of Exchange.
In times of financial crisis, SCBs can approach the RBI for financial
assistance.
Lender of Last Resort
Acts as the final source of funds when banks cannot borrow from other
sources.
Custodian & Manager RBI manages and maintains foreign exchange reserves to stabilize the
of Foreign Reserves external value of the Indian currency and promote international trade.
Controller of Uses monetary policy tools to control the volume of money supply to
Credit/Money Supply manage inflation, deflation, and stabilize prices in the economy.
Category Details
Currency notes are printed in 4 presses located in:
- Nasik (Maharashtra)
- Dewas (Madhya Pradesh)
Currency Notes - Mysore (Karnataka)
- Salboni (West Bengal)
Currency Notes - Ownership: Nasik and Dewas presses are owned by the Government of India.
Mysore and Salboni presses are owned by the RBI via Bharatiya Reserve Bank Note
Printing and Mudran Ltd. (BRBNML).
Coins Minting Coins are minted in 4 mints located in:
- Mumbai (Maharashtra)
in India Coins
- Hyderabad (Telangana)
- Kolkata (West Bengal)
- Noida (Uttar Pradesh)
- All 4 mints are owned by the Government of India.
- Coins can be issued up to the denomination of ₹1,000 (as per the Indian Coinage
Act of 1906).
Denomination Limits
- Currency notes can be issued up to the denomination of ₹10,000 (as per the RBI
Act of 1934).
- The ₹1 note is the only note that bears the signature of the Finance Secretary of
₹1 Note the Government of India, not the RBI Governor.
- All other currency notes bear the signature of the Governor of the RBI.
Understand the Term
Minimum Reserve System
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.
Function Description
The RBI regulates banks under the RBI Act of 1934 and the
Banking Regulation Act of 1949.
Regulator of Banks - Grants licenses to banks.
- Prescribes minimum requirements for paid-up capital and
reserves.
General The RBI promotes the growth and development of the Indian
Financial System through various initiatives.
Functions - Expands the presence of commercial banks by enabling
branch expansions domestically and internationally.
- Encourages banking habits among the public.
Promotional Functions
- Promotes financial inclusion to ensure broader access to
financial services.
- Provides consumer education and protection to safeguard
customer interests.
- Supports Digital India initiatives by promoting digitization in
the financial sector.
Major Reports and Publication by RBI
Monetary Policy Report (Half-
Financial Stability Report (Half-
Yearly): Published by the Monetary
Yearly): Assesses risks to financial
Policy Committee, focusing on
stability and the resilience of the
inflation targeting and determining
financial system.
policy rates.
Consumer Confidence Survey Inflation Expectations Survey of
(Quarterly): Collects households' Households (Quarterly): Gathers
perceptions on economic households' views on price
conditions, employment, income, changes and inflation for the next 3
and spending. months and 1 year.
Digital Payments Index (DPI):
Report on Foreign Exchange Measures the extent of digital
Reserves (Half-Yearly): Provides payment adoption across India
insights into foreign exchange based on five parameters:
reserve movements and external enablers, infrastructure (demand
liabilities. and supply), performance, and
consumer centricity.