The Reserve Bank of India (RBI) is India's central bank. It was established in 1934 under the Reserve Bank of India Act and started operations in 1935. RBI acts as the banker, lender of last resort, and regulator of the banking system. It uses various monetary policy tools like the cash reserve ratio, statutory liquidity ratio, repo rate, and reverse repo rate to regulate money supply and control inflation in the country. RBI aims to maintain inflation between 4-5% to ensure stable economic growth.

3. According to Banking Regulation Act, 1949,
“banking means the accepting, for the purpose of
lending or investment, of deposits of money
from the public, repayable on demand or
otherwise and withdrawable by cheque, draft,
order or otherwise”.
Banking can be defined as the business
activity of accepting and safeguarding money
owned by other individuals and then lending out
this money in order to earn a profit.

5. The history of banking began with the first
prototype banks which were the merchants,
who made grain loans to farmers and traders
who carried goods between cities.
During Roman Culture banks were known as
“ARGENTARIOE ” and bankers were known
as “ARGENTARII” . In India, banks came under
British Period in year 1850-60 .

6. 1900-1920 was the time when the working of banks
starts to fail due to:
 Insufficient funds
 Improper liquidity of assets
 Inexperienced staff in the banks
 Problems faced by the Government
To overcome this problem Britishers formed a
committee in 1920-1926 named Royal Committee
or Hilton Young Committee to form a Central
Bank for all the banks to supervise, monitors other
banks.

7.  The Central Bank is the undisputed leader of
the money market.
 It supervises, controls and regulates the
activities of the commercial banks.
 The Central Bank is also the highest monetary
institution in the country charged with the
duty and responsibility of carrying out the
monetary policy formulated by the
government.

8.  RBI is India’s Central Bank which has been
established under the Reserve Bank Of India
Act, 1934. It commenced operations from April
1, 1935.
 Initially RBI was constituted as a private share-
holders bank with a capital of Rs 5 crore.
 It was nationalised under the RBI Act, 1948.
 On January, 1949, the RBI started functioning
as a state-owned Central banking institution.

10.  The management of the RBI is under the
control of Central Board Of Directors
consisting of 20 members.
 There are four regions –the Western, Eastern,
Northern and Southern.
 The headquarters of local boards are located at
Mumbai, Kolkata, New Delhi and Chennai.
 The executive head of the RBI is its Governor
who is assisted by 4 Deputy Governors.
Currently it is “Shaktikanta Das” and earlier it
was “Urjit Patel”.

11. MUMBAI
CHENNAI
DELHI
KOLKATA

13. The RBI performs all the traditional functions
of a Central Bank. i.e, to act as a note- issuing
authority, banker’s bank and banker to
government . In addition, it performs some
supervisory and promotional functions. Many
functions are described below:

14.  The RBI issues currency notes of various
denominations, other than rupee coins and one
rupee note and subsidiary coins which are
issued by the Ministry Finance of the Central
Government.
 Under a system known as minimum reserve
system , in operation since 1956 and modified
in 1957 the size of minimum reserve is Rs 200
crore(inc. Rs 115 crore worth of gold in it).

15. YEAR GOLD (RS. Crore)
2008-2009 48,793
2009-2010 81,188
2010-2011 1,02,572
2011-2012 1,38,250
2012-2013 (Dec.) 1,49,103
March 29, 2013 26.292 billion dollar
Source: Economic Survey

16.  The RBI is entrusted with the task of receiving
money on behalf of the Government, as also
with the task of making payment on its behalf.
 It performs these functions mainly through the
State Bank Of India, which works as its agent at
places where it has no office of its own.
 The RBI represents the Government Of India as
member of the International Monetary
Fund(IMF) and the World Bank.

17.  Reserve Bank of India also works as a central bank
where commercial banks are account holders and
can deposit money.
 RBI maintains banking accounts of all scheduled
banks. Commercial banks create credit.
 As banker's bank, the RBI facilitates the clearing of
cheques between the commercial banks and helps
the inter-bank transfer of funds. It can grant
financial accommodation to schedule banks.
 It acts as the lender of the last resort by providing
emergency advances to the banks.

18.  RBI has the responsibility of regulating the
nation's financial system.
 As a regulator and supervisor of the Indian
banking system it ensures financial stability &
public confidence in the banking system.

19. Inflation is a state in which the circulation of
money in the market increases leading an increase
in the prices of goods as the demand increases.
 It is the duty of RBI to maintain the circulation of
money in the market.
 RBI is responsible for keeping the rate of inflation
at a desired level.
 Desired level is the level of increase in inflation i.e.
4% to 5%. It is necessary to maintain this
percentage because without that the economy
cannot grow.

20.  RBI had developed 5 measures to control
inflation i.e.
1. Cash reserve ratio
CRR is a certain percentage of the total bank
deposits that has to be kept in the current
account with RBI. It means banks do not have
access to that much amount for any economic
activity or commercial activity. Banks can’t
lend the money to corporate or individual
borrowers, banks can’t use that money for
investment purposes.

21.  SLR is the amount of money that is invested in
certain specified securities predominantly
central government and state government
securities. Once again this percentage is of the
percentage of the total bank deposits available
as far as the particular bank is concerned.

22.  Repo rate is a rate at which banks borrow from
RBI .
 RBI manages this repo rate which is the cost of
credit for the bank.
 RBI usually gives money to banks at higher
rates.

23.  Reverse Repo rate is a rate at which RBI borrow
from bank.
 It is a monetary policy instrument which can be
used to control the money supply in the
country.
 RBI usually takes money from banks at lower
rates. Lower the rates less the rate to be paid to
banks.

24.  In general, as interest rates are lowered, more
people are able to borrow more money.
 The result is that consumers have more money
to spend, causing the economy to grow
and inflation to increase.
 The opposite holds true for rising interest
rates. With less spending, the economy slows
and inflation decreases.