The role of the Board of Directors of the Reserve Bank of India (RBI) and its powers vis-à-vis the RBI Governor have come into focus in the ongoing tussle between the Centre and the central bank. The Centre has hinted that it is examining the option of using the powers of the RBI Board to override the Governor. There are several questions that arise from this unprecedented attempt by the Centre to use powers under the Reserve Bank of India Act, 1934. The most important of these is: Where does the balance of power lie between the Governor and the board? What is the legal position of the board in relation to the Governor? Does the latter draw his powers from the board as in a corporate set­up? Can the board give directions to the Governor on issues of policy and management of the central bank?

Before we get to answering these, let’s get this out of the way first. The relationship between the board and the Governor is not comparable to a corporate set­up where the managing director (the corporate equivalent of the Governor) reports to the board and draws his powers from it.

While a managing director is an agent of the board in a company, in the RBI, the Governor is not. He draws his powers from the RBI Act and not from the Board of Directors. He is appointed by the Prime Minister in consultation with the Finance Minister. The RBI Board has no say whatsoever in his appointment. In a company, the board of directors chooses one of its own to be appointed as the managing director. In the RBI, the Governor secures board membership only after he is appointed to the post. It is, thus, wrong to compare a corporate board to the RBI’s and suggest that the Governor is subservient to it.

Answer the following questions from the above passage-

Questions-

1. In which case has the RBI indicated the centre?

2. What questions arise by the centre under the act 1934?

3. Explain the relationship between the board and the governor?

4. How do you appoint a governor in a company?

5. How to get membership in RBI?