Functions of Reserve Bank of India

The functions of RBI include maintaining monetary stability keeping in mind the objective of growth. The
Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve
Bank of India Act, 1934. It was started with a paid up capital of rupees fifty million. The Central Office of
the Reserve Bank was initially established in Kolkata but was permanently moved to Mumbai in 1937
Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the
Government of India. The primary role of the RBI, as the Act suggests, is monetary stability and stable
expectations of inflation

History of RBI
• Hilton-Young Commission – recommended the creation of a central bank for India
• To separate the control of currency and credit from the Government
• To augment banking facilities throughout the country.
• Reserve Bank of India Act of 1934 established the Reserve Bank
• Started operations on 1st April, 1935
• Started as a private shareholders' bank, the Reserve Bank was nationalised in 1949
• Started with paid-up capital of Rs 5 crore and still maintains the same paid up capital

Preamble of RBI
to regulate the issue of Bank notes and 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; to have a
modern monetary policy framework to meet the challenge of an increasingly complex economy, to
maintain price stability while keeping in mind the objective of growth

Central Board of RBI

The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the
Government of India.

• Official Directors
o Full-time : Governor and not more than four Deputy Governors
• Non-Official Directors
o Nominated by Government: ten Directors from various fields and two government
Official

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 o Others: four Directors - one each from four local boards
• Appointed/nominated for a period of four years

Local Boards of RBI

One each for the four regions of the country in Mumbai, Kolkata, Chennai and New Delhi

To advise the Central Board on local matters and to represent territorial and economic interests of local
cooperative and indigenous banks; to perform such other functions as delegated by Central Board from
time to time.

Regional offices of RBI

• 27 regional offices, most of them in state capitals and 04 Sub-offices
• six training establishments

Subsidiaries of RBI
1. Deposit Insurance and Credit Guarantee Corporation of India (DICGC)
2. Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL)
3. Reserve Bank Information Technology Private Limited (ReBIT)
4. Indian Financial Technology and Allied Services (IFTAS)

Functions of RBI
1. Banking:
• Section 17 of the RBI Act enables RBI to do banking business, such as accepting deposits,
without interest, from any person.
• Section 18 facilitates the RBI to act as a 'Lender of Last Resort'
• Section 19 states the list of businesses which the RBI may not transact.
• Sections 20 and 21 of the RBI Act the RBI shall have an obligation and right respectively
to accept monies for account of the Central Government and
• 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.
2. Monetary Authority
• RBI Act provides for a statutory basis for the Monetary Policy Framework and the
Monetary Policy Committee
3. Regulator and supervisor of the financial system:
a. Banking Companies
• Power to regulate and supervise banks has been provided under the provisions
of the Banking Regulation Act, 1949 (BR Act, 1949) to the RBI
• to formulate banking policy , regulate banking business, protect the interests of
banking companies, supervision of banking companies
• to appoint a Chairman or Managing Director of a banking company
• to appoint additional directors on the boards of banking companies. Even
remove them

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 • to control advances by banking companies
• to issue license and also to cancel licenses of banking companies
• to issue directions to banking companies in the 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
• to issue directions to banking companies for resolution of stressed assets
• to inspect banking companies on its own or at the instance of Central
Government
• well-being of banking company, in improving monetary stability and economic
growth
a. NBFC
• Every non-banking financial company to obtain a certificate of registration from
the RBI
• to maintain net owned fund as may be specified by the RBI
• statutory powers to regulate or prohibit issue of prospectus or advertisements
soliciting deposits of money by non-banking financial companies
• power to determine policy and issue directions to non-banking financial
companies,
• power to inspect them
b. Co-operative banks
• Regulation and supervision of the urban co-operative banks is entrusted with
RBI
• duality of jurisdiction over cooperative banks both by the Reserve Bank of India,
in terms of the Banking Regulation Act, 1949, and the Registrar of Cooperative
Societies, in 38 terms of the respective State Cooperative Societies Act, of the
State concerned
4. Manager of Foreign Exchange
• The powers and responsibilities with respect to external trades and payments,
development and maintenance of foreign exchange market in India are conferred on the
RBI under the provisions of the Foreign Exchange Management Act, 1999
• 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
5. Issuer of currency
• Right to issue bank notes is one of the key central banking functions the RBI is mandated
to do
• Section 22 of the RBI Act confers the RBI with the sole right to issue bank notes in India

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 • The RBI Act enables the RBI to recommend to Central Government the denomination of
bank notes, which shall be 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
• The bank notes that are being issued by the RBI are exempt from payment of stamp
duty
6. Developmental role
• to promote financial inclusion
• Section 26-A casts a responsibility on the RBI to focus towards achieving financial
literacy in the country
7. Regulator and Supervisor of Payment and Settlement Systems
• Payment and Settlement Systems Act, 2007 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
8. Banker to the Government
9. Banker to banks
10. Public Debt
• 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.
• The GST Act Applies to Government securities created and issued by the Central
Government or a State Government
11. Regulation of Derivatives and Money Market Instruments
• Regulation of transactions relating to derivatives, money market instruments, securities,
etc. by the RBI
• The power of RBI to regulate these money market instruments have been provide under
Section 45W of the RBI Act
12. Consumer Protection
• Protection of the interests of the depositors

Important
• The power of the RBI to regulate and supervise banking companies emanates from the
provisions of the BR Act whereas the powers to regulate and supervise non-banks has the
source from RBI Act
• Regional Rural Banks (RRBs), State Co-operative Banks (StCBs) and District Central Co-operative
Banks (DCCBs) are supervised by National Bank for Agriculture and Rural Development
• Housing Finance Companies (HFCs) are supervised by National Housing Bank (NHB)

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 • Ministry of Company Affairs (MCA), Government of India regulates deposit taking activities of
companies, other than NBFCs, registered under the Companies Act, but not those which are
under separate statutes.
• RBI/NABARD is concerned with the banking function of the co-operatives, the management
control rests with the State/Central Governments. The Registrar of Co-operative Societies (RCS)
of respective states in case of single state co-operative banks and the Central Registrar of Co-
operative Societies (CRCS) in the case of multi-state co-operative banks are joint regulators with
the RBI for UCBs and with the NABARD for rural co-operatives
• The Insurance Regulatory and Development Authority (IRDA) regulates the insurance sector
• The capital market, credit rating agencies, etc., are regulated by Securities and Exchange Board
of India (SEBI).

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