Reserve Bank of India: The role of the lender of last resort in the Indian economy
▪ What is RBI: The Reserve Bank of India (abbreviated as RBI) is India’s
Central Bank and regulatory body responsible for regulating the Indian banking
system. Owned by the Ministry of Finance of the govt of India is responsible
for the control, issuing, and maintaining supply of the Indian rupee. It also
manages the country's main payment systems and works to promote its
economic development.
The RBI, along with the Indian Banks' Association (IBA), established
the National Payments Corporation of India (NPCI) to promote and regulate
the payment and settlement systems in India. Bharatiya Reserve Bank Note
Mudran (BRBNM) is a specialized division of RBI through which it prints and
mints Indian currency notes (INR) in two of its currency printing presses
located in Mysore (Karnataka; Southern India) and Salboni (West Bengal;
Eastern India). RBI established Deposit Insurance and Credit Guarantee
Corporation as one of its specialized divisions to provide insurance of deposits
and guaranteeing credit facilities to all Indian banks.
RBI is an institution of national importance and the pillar of the surging Indian
economy. It is a member of the International Monetary Fund (IMF). The
concept of the Reserve Bank of India was based on the strategies formulated by
Dr. Ambedkar in his book named “The Problem of the Rupee – Its Origin and
Its Solution’’. This central banking institution was established based on the
suggestions of the “Royal Commission on Indian Currency & Finance” in
1926. This commission was also known as
Hilton Young Commission:
In 1949, the Reserve Bank of India was nationalized and became a member
bank of the Asian
Clearing Union
Reserve Bank OF India (RBI): TIMELINE :-
The RBI is an important tool in the development strategy of the Indian
government. One of the things to know about RBI is its timeline which is
provided in the table below:
Year Event
1934
The British enacted the Reserve Bank of India Act
1935
Reserve Bank of India was established on the 1st of April in Calcutta
1937
Reserve Bank of India was permanently moved to Mumbai
1949
It was nationalized after independence. The bank was held by a private
before this.
In the year 2016, the original RBI Act of 1934 was amended, and that provided
the statutory basis for the
implementation of the flexible inflation-targeting framework
The Preamble of the Reserve Bank of India :
Another thing to know about RBI is its Preamble. It describes the basic
functions of the Reserve Bank
as:
“…to regulate the issue of Bank Notes and keeping of reserves to secure
monetary stability in
India and generally to operate the currency and credit system of the
country to its advantage.”
Until the Monetary Policy Committee was established in 2016, it also had full
control over monetary policy in the country.
It commenced its operations on 1 April 1935 under the Reserve Bank of India
Act,1934
Function of The Reserve Bank of India:
Monetary Authority:
● Implementation of monetary policies
● Monitoring the monetary policies
● Ensuring price stability in the country considering the economic
growth of the country
Managing Foreign Exchange
● RBI manages the FOREX Reserves of India
● It is responsible for maintaining the value of the Rupee outside the
country
● It aids foreign trade payment
Issuer of currency
● The Reserve Bank of India is responsible for providing the public
with a sufficient supply of currency notes and coins
● The quality of currency notes and coins is also taken care of by
the RBI
● RBI oversees the issuing and exchanging of currency and coins
● Also, the destruction of currency and coins that are not fit for
circulation.
RBI's Developmental Role
● Promotional functions that support national objectives are
organized by RBI that encourage rural
and agricultural economic development.
● The RBI will regularly issue directives to commercial banks to
lend loans to small-scale
● industrial units.
Composition of RBI :
● The Reserve Bank of India is controlled by a central board of directors.
The directors are appointed for a 4-year term by the Government of
India in keeping with the Reserve Bank of India Act
● The Central Board consists of:
1. Governor
2. 4 Deputy Governors
3. 2 Finance Ministry representatives
4 directors to represent local boards headquartered in Mumbai, Kolkata, Chennai,
and New Delhi
● The executive head of RBI is Governor
● The Governor is accompanied by 4 deputy governors
● The First Governor of RBI was Sir Osborne Smith, and the First Indian
Governor of RBI was C
D Deshmukh.
● The First woman Deputy Governor of RBI was K J Udeshi
● The only Prime Minister who had been the Governor of RBI was
Manmohan Singh.
❖ The current governor of RBI (2021) is Shaktikanta Das.
Zonal Offices:
● RBI has four zonal offices: New Delhi for the North, Chennai for
the South, Kolkata for the East, and
Mumbai for West.
Conclusion:
The Reserve Bank of India holds a vital role in the banking and
economic stability of the country. It formulates and implements
monetary policy in the country to maintain stability and growth in
the economy. As a banker’s bank, its role is essential for the
proper operation of the banking sector of the country. The
Reserve Bank of India is entrusted with a multidimensional role
and its role as a regulator has been crucial recent global crisis
where the Indian banking and financial system remained strong
with adequacy and stability. Thus! considering the role and
functions of the Reserve Bank of India! it can be termed as one
of the most vital organizations of the Indian economy and super
regulator of banking sector.