a brief description of Reserve Bank of India (RBI) and its Function

1. CENTRAL BANK OF INDIA- RBI

2. INTRODUCTION
‘Reserve Bank of India’ (RBI) is the central bank of India.
It is the supreme monetary and banking authority in the country and controls
the banking system in India.
India’s financial system is dominated by banks. Their regulation and supervision
is therefore, important both from the viewpoint of protecting the depositors’
interest and preserving financial stability.

3. INTRODUCTION
The origins of the RBI can be traced to 1926, when the Royal Commission on
Indian Currency and Finance also known as the Hilton-Young Commission –
recommended the creation of a central bank for India to separate the control of
currency and credit from the Government and to augment banking facilities
throughout the country.
 The ‘Reserve Bank of India Act, 1934’ was introduced and RBI came into
existence in 1935. RBI started its operation from April 1, 1935.

4. INTRODUCTION
In the beginning, its headquarter was in Kolkata, but it was shifted to Mumbai in
1937.
Prior to establishment of RBI, the functions of a central bank were virtually being
done by the Imperial Bank of India, which was established in 1921 by merging
3 presidency banks (Bank of Calcutta, Bank of Madras and Bank of Bombay) but it
was mainly a commercial Bank.
RBI started its operation as a privately owned Bank. It was nationalized in
1949 and started working as a Government owned Central Bank of India.

5. INTRODUCTION
RBI Governors
First Governor of RBI was ‘Sir Osborne Smith’ (1935-1937).
First Indian Governor of RBI was ‘CD Deshmukh’ (1943-1949).
‘Dr. Manmohan Singh’ was one governor of RBI (1982- 1985) who became Prime
Minister of India.
Current Governor of RBI is ‘Shri Shaktikanta Das’, appointed on 11 December
2018 for a period of three years, replacing ’Urjit Patel’ and serving as the
25th governor of RBI.

6. INTRODUCTION
The Emblem of RBI is tiger and Palm Tree.
its Fiscal Year is from July 1 to June 30. but in Fiscal Year 2020-21, it has been decided
that Fiscal Year 2020 -21 begins on July 1, 2020 but end on March 31, 2021. thereafter,
All fiscal year will start from April 1 and end on March 31.
RBI has four zonal offices at Mumbai, Kolkata, Delhi and Chennai. RBI has
nineteen regional offices at Thiruvananthapuram, Patna, Nagpur, Lucknow, Mumbai,
Kochi, Kolkata, Jammu, Kanpur, Chennai, Delhi, Guwahati, Bhubaneshwar, Bhopal,
Hyderabad, Ahmedabad, Chandigarh, Jaipur and Bangalore

7. AIMS AND OBJECTIVES OF RBI
The purposes for which the RBI has been established as India’s central bank has been spelt
out in the preamble to the RBI Act, which states as follows:
 “to regulate the issue of banknotes and the 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; and
that it is essential to have a modern monetary policy framework to meet the challenge of
an increasingly complex economy and the primary objective of the monetary policy is to
maintain price stability while keeping in mind the objective of growth”.

8. ROLE AND FUNCTIONS OF RBI
The functions of RBI is not restricted only within the provisions of the RBI Act, but also
extends to various areas, such as, regulation and supervision of banks, consumer
protection, management of foreign exchange, management of government securities,
regulation and supervision of payment systems, etc., for which powers are drawn from
various laws, namely, the Banking Regulation Act, 1949, Foreign Exchange Management
Act, 1999, Government Securities Act, 2006, Payment and Settlement Systems Act, 2007,
etc.

9. ROLE AND FUNCTIONS OF RBI
Functions of RBI
Functions of RBI
Banking Functions
Issue Functions
Monetary policy Functions
Public Debt Function
Foreign Exchange management Functions
Banking regulation and supervision Functions
Regulation & Supervision of NBFCs functions
Regulation and Supervision of Co-operative Banks functions
Regulation of derivatives and money market instrument functions
Payment & settlement Functions
Credit information companies regulation functions
Consumer Protection & promotion Functions

10. ROLE AND FUNCTIONS OF RBI
Banking Function:
i. Section 17 of the RBI Act, 1934 enables RBI to do banking business, such as accepting
deposits, without interest, from and collection of money for the Central Government, the State
Governments, local authorities, banks and any other person. It states that the RBI may transact
various businesses such as purchase, sale and rediscount of Bills of Exchange, making of short
term loans and advances to banks and other institutions, providing of annual Contributions to
National Rural Credit Funds, dealing in Derivatives, purchase and sale of Government
Securities, purchase and sale of shares of State Bank of India, National Housing Bank, Deposit
Insurance and Credit Guarantee Corporation, etc., keeping of Deposits with SBI for specific
purposes, making and issue of Banknotes, etc. (Section 19 lists out the kinds of businesses
which RBI may not transact)

11. ROLE AND FUNCTIONS OF RBI
ii. Section 18 of the RBI Act, 1934 facilitates the RBI to act as a ‘Lender of Last
Resort’.
iii. Under the Sections 20 and 21 of the RBI Act, RBI has an obligation and right
respectively to accept monies for account of the Central Government and to make
payments up to the amount standing to the credit of its account, and to carry out its
exchange, remittance and other banking operations, including the management of the
public debt of the Union. In the case of State Governments, the said banking functions
may be undertaken by way of an agreement between the RBI and the State
Government concerned, as provided in Section 21-A of the RBI Act.

12. ROLE AND FUNCTIONS OF RBI
 Issue Function :
• Section 22 of the RBI Act confers on RBI the sole right to issue bank notes in India. The issue of bank
notes shall be conducted by a department called the Issue Department, which shall be separated
and kept wholly distinct from the Banking Department.
• The RBI Act enables RBI to issue banknotes of two rupees, five rupees, ten rupees, twenty rupees,
fifty rupees, one hundred rupees, five hundred rupees, one thousand rupees, five thousand rupees
and ten thousand rupees or other denominations not exceeding ten thousand rupees.
• Another function is exchange of mutilated or torn notes, which under the RBI Act is not a
matter of right, but of grace.
• The bank notes that are being issued by the RBI are exempt from payment of stamp duty.

13. ROLE AND FUNCTIONS OF RBI
Monetary Policy Functions:
Chapter III-F of the RBI Act, 1934 provides for a statutory basis to the RBI for the Monetary Policy
Framework and the Monetary Policy Committee.
Public Debt Functions
The GS (Government Securities) Act, 2006 prescribes the procedure and modalities to be followed by
the RBI in the management of the public debt and also confers various powers on the RBI, including the
power to determine the title to a Government security, if there exists any doubt in the opinion of the
RBI.

14. ROLE AND FUNCTIONS OF RBI
Foreign Exchange management Functions:
• Section 10 of the FEMA, 1999 empowers the RBI to authorize any person to be known as
authorized person to deal in foreign exchange or in foreign securities, as an authorized dealer,
money changer or off-shore banking unit or in any other manner as it deems fit. Similarly, it
empowers the RBI to revoke an authorization issued to an authorized dealer in public interest, or the
authorized person has failed to comply with the conditions subject to which the authorization was
granted or has contravened any of the provisions of the FEMA or any rule, regulation, notification,
direction or order issued by the RBI.
• Section 13 of the FEMA, 1999 details out the contraventions and penalties, and the RBI has been
empowered to compound certain contraventions under Section 15 of the FEMA.

15. ROLE AND FUNCTIONS OF RBI
Banking Regulation and Supervision Functions:
The power to regulate and supervise banking companies has been provided by the provisions of the
Banking Regulation Act, 1949 (BR Act, 1949) to the RBI.
• formulating banking policy -Section 5(ca) of the BR Act, 1949, states that banking policy means
any policy, which is specified from time to time by the RBI, in the interest of the banking system or in
the interest of monetary stability or sound economic growth, having due regard to the interests of the
depositors, the volume of deposits and other resources of the bank and the need for equitable
allocation and the efficient use of these deposits and resources.
• The appointment of chairman and whole-time directors of a banking company shall not have
effect, unless done with the previous approval of the Reserve Bank.

16. ROLE AND FUNCTIONS OF RBI
• Section 36-AB of BR Act, 1949, empowers RBI to appoint additional directors on the boards
of banking companies.
• Section 36-AA of the BR Act, 1949 enables RBI to remove executives, officers and employees of a
banking company under certain conditions.
• Section 22 of the BR Act, 1949 confers on RBI the power to issue licenses and also to cancel
licenses of banking companies.
• Under Section 35-A of the BR Act, 1949, RBI has the power to issue directions to banking
companies in public interest or in the interest of banking policy or to prevent the affairs of any
banking company being conducted in a manner detrimental to the interests of the depositors or in a
manner prejudicial to the interests of the banking company or to secure the proper management of
any banking company.

17. ROLE AND FUNCTIONS OF RBI
• The Banking Regulation (Amendment) Act, 2017 has provided powers to RBI to issue
directions to banking companies in relation to resolution of stressed assets.
Stressed Assets= NPAs + restructured Loans + written off Assets
• As part of the supervisory powers, RBI has been empowered to inspect banking companies on its own
or at the instance of Central Government under the provisions of the BR Act.
Regulation and Supervision of NBFCs Functions
• Section 45-IA of the RBI Act mandates every non-banking financial company to obtain a
certificate of registration from the RBI and to have a net owned fund as may be specified by the RBI
in the Official Gazette, before commencing such nonbanking financial business.

18. ROLE AND FUNCTIONS OF RBI
• The RBI has been empowered under Section 45-L of the RBI Act to call for information and issue
directions to non-banking financial companies for the reasons stated therein.
• As a part of the supervisory control over the non-banking financial companies, the RBI has the power
to inspect them under Section 45-N of the RBI Act, 1934.
Regulation & Supervision of Co-operative banks Functions
• In the Article 246 of the Constitution of India, the legislative powers of the Union and the State are
given in three Lists, viz., the Union List the State List and the Concurrent List respectively of Schedule
VII to the Constitution.
• The entry relating to incorporation, regulation and winding-up of Cooperative Societies fall in State
List whereas the entry relating to banking fall in the Union List. This results in the duality of
jurisdiction over cooperative banks - by the Reserve Bank of India and the Registrar of Cooperative
Societies.

19. ROLE AND FUNCTIONS OF RBI
Regulation of Derivatives and Money Market Instruments Functions
Chapter III-D was inserted in the RBI Act with effect from 9th January 2007 by way of an
amendment to the RBI Act, 1934 introducing provisions relating to regulation of transactions relating
to derivatives, money market instruments, securities, etc. by the RBI.
Payment and Settlement Functions
The Payment and Settlement Systems Act, 2007 (‘PSS Act, 2007’) has been introduced with an objective
to provide for the regulation and supervision of payment systems in India and to designate the Reserve
Bank of India as the authority for that purpose and for matters connected therewith or incidental
thereto.

20. ROLE AND FUNCTIONS OF RBI
Credit Information Companies Regulation Functions
Reserve Bank has been entrusted with the task of regulation and supervision of Credit Information
Companies under the Credit Information Companies (Regulation) Act, 2005. The Act empowers the
Reserve Bank to issue directions to Credit Information Companies and also to inspect them. The
Reserve Bank is also authorized by the statute to determine policy in relation to functioning of credit
information companies.
Consumer Protection and promotion Functions
Protection of the interests of the depositors is one of the vital mandates of the RBI. The various
provisions in the RBI Act, 1934, BR Act, 1949, etc., are replete with the phrases like “in the interests of
depositors” wherever it entrusts powers to the RBI.

21. REFERENCES
RWF15012018_FCD40172EE58946BAA647A765DC942BD5.PDF (rbi.org.in)
RESERVE BANK OF INDIA ACT, 1934 (rbi.org.in)