The Reserve Bank of India is also known as the Nation’s Central Bank. According to the bank dossiers, it began operations on April 01, 1935. In the following section, we will know more about how the bank came into being. We will also see the historic acts and the decisions that the bank has been a part of. Finally, we will summarise by listing the functions of the Reserve Bank Of India. Let us also see the history of the history of RBI.

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 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.
• RBI regulates the credit and currency system in India.
• The chief objectives of the RBI are to sustain the confidence of the public in the system, protect the interests of the depositors, and offer cost-effective banking services like cooperative banking and commercial banking to the people.

Origin & History Of The Reserve Bank Of India

Origin Timeline

1926: The Royal Commission on Indian Currency and Finance recommended the creation of a central bank for India.

1927: A bill to give effect to the above recommendation was introduced in the Legislative Assembly. But it was later withdrawn due to lack of agreement among various sections of people.

1933: The White Paper on Indian Constitutional Reforms recommended the creation of a Reserve Bank. A fresh bill was introduced in the Legislative Assembly.

1934: The Bill was passed and received the Governor General’s assent

1935: The Reserve Bank commenced operations as India’s central bank on April 1 as a private shareholders’ bank with a paid up capital of rupees five crores (rupees fifty million).

1942: The Reserve Bank ceased to be the currency issuing authority of Burma (now Myanmar).

1947: The Reserve Bank stopped acting as banker to the Government of Burma.

1948: The Reserve Bank stopped rendering central banking services to Pakistan.

1949: The Government of India nationalized the Reserve Bank under the Reserve Bank (Transfer of Public Ownership) Act, 1948.

Currently, the Bank’s Central Office, located at Mumbai, has twenty-seven departments. (Box No.3) These departments frame policies in their respective work areas. They are headed by senior officers in the rank of Chief General Manager.

The Preamble of 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.”

Composition of RBI

• 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:
  • Governor 
  • 4 Deputy Governors
  • 2 Finance Ministry representatives
  • 4 directors to represent local boards headquartered at 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. Get the list of RBI Governors in the linked article.

Zonal Offices

• RBI has four zonal offices: New Delhi for North, Chennai for South, Kolkata for East, and Mumbai for West.
• The Reserve Bank of India has 19 regional offices and 11 sub-offices at present.
• The bank has two training colleges for its officers:
  • Reserve Bank Staff College at Chennai
  • College of Agricultural Banking at Pune.

What does the RBI logo mean?

RBI logo is to remind and symbolise not just its governmental status, its links to the country – but also its independence and a critical separation of the RBI from the government.The consideration, according to the RBI, in selecting the logo was, that “the seal should emphasise the Governmental status of the Bank, but not too closely” and that “it should have something Indian in the design”.

What animal is RBI logo?

The official emblem of the apex bank – a palm tree and a tiger – is in many ways a vestige of this colonial past and is derived from the East India Company’s original seal and mohur that showed a lion and a palm tree.The tiger, it was decided, would replace the lion. Tigers, at the time, were widespread in India and carried a cultural cache like no other species.The tiger was chosen since it was felt to be more an ‘Indian’ animal than the lion. At the time, the tiger was widespread through the country, while the lion was virtually extinct.

What is RBI contingency fund?

The RBI also stores a Contingency Fund (CF), which is another provision for tackling unexpected emergencies. Coming to surplus funds, it is the amount RBI transfers to the government after meeting its own expenses. This surplus is basically RBI’s income which it earns through interest on securities it holds.

Who owns RBI?

Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India.

How many branches of RBI are there in India?

There are four zonal offices of RBI 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.

Reserve Bank of India - Functions and Powers

Functions of RBI can be classified into following categories:
a) Traditional functions
b) Development functions
c) Supervisory functions

(A) TRADITIONAL FUNCTIONS OF RBI

1. Issue of Currency Notes

As per the provisions of the Section 22 of the Reserve Bank of India Act 1934 the RBI has sole right or authority to issue currency notes except one rupee note and coins of smaller denomination. RBI can exchange these currency notes for other denominations.  RBI issues these currency notes ( 2, 5, 10, 20, 50, 100, 500, 1000) against the security of gold bullion, foreign securities, rupee coins, exchange bills, promissory notes and government of India bonds etc. 

2. Banker to other Banks

RBI also guide, help and direct other commercial banks in the country.RBI can control the volume of bank reserves. Every commercial bank has to maintain a part of their reserves with Its parent (RBI). If bank need fund they approach to RBI for fund, that is called Lender of the Last Resort.

3. Banter to The Government

RBI works as an agent of the central and state governments. On the behalf of government it makes payments, taxes and deposits etc. It also represent the government at international level also. It maintains government accounts and provide financial advice to the government. It also manages government public debts and maintains foreign exchange reserves on behalf of the government. RBI also provides overdraft facility to the government in case of financial shortage.

4. Exchange Rate Management

For maintenance of the external value of rupee, RBI prepares domestic policies. Also it need to prepare and implement the foreign exchange rate policy which will help in attaining the exchange rate stability. For maintenance of exchange rate stability it has to bring demand and supply of foreign currency (U.S.) dollar close to each other.

5. Credit Control Function

Commercial banks creates credit according to demand in the economy. But if this credit creation is unchecked or unregulated then it leads the economy into inflationary cycles. If credit creation is below the required limit then it harms the growth of the economy. As a central bank of India, RBI has to look for growth with price stability. Thus it creates the credit creation capacity of commercial banks by using various credit control tools.

6. Supervisory Function

RBI supervise the banking system in India. RBI has power to issue licence for setting up new banks, to open new branches, to decide minimum reserves. RBI inspects functioning of commercial banks in India and abroad. RBI also guide and direct the commercial banks in India. RBI can conduct audit any of the bank.

(B) DEVELOPMENTAL FUNCTIONS OF RBI

1. Development of the Financial System

The financial systems includes - financial institutions, financial markets and financial instruments. The sound and efficient financial system is necessary for rapid economic development of the nation.

RBI encourages the banking and non - banking institution for maintenance of sound and healthy financial system.

2. Development of Agriculture

As we know, India is an agrarian economy so RBI always give attention to agriculture sector by assessing credit needs of this sector. Regional Rural Banks (RRB), National Bank for Agriculture and Rural Development (NABARD) which are only for agriculture finance comes under the control of the RBI.

3. Industrial Finance

For economic development of country, Industrial development is necessary. As we know industries includes small industries, middle industries, large scale industries etc all these industries development is necessary for overall economic development of country. For this purpose RBI supports the industrial sector also. RBI had played the vital role for setting up of such industrial finance institutions like ICICI Limited, IDBI, SIDBI, EXIM etc.

4. Training Provision

RBI always tried to provide essential training to the staff of the banking industry. RBI has set up banker's training college at several places. The training institute namely National Institute of Bank Management (NIBM), Bankers Staff College (BSC), College of Agriculture Banking (CAB) etc. 

5. Data Collection

RBI always collects important statistical data on several topics such as interest rates, inflation, savings, investment, deflation etc. This data is very much useful for policy makers and researchers.

6. Publication of the Reports 

RBI has its separate publication division. This division collect and publish data on different sector of the economy. The reports and bulletins are regularly published by the RBI. It includes RBI weekly reports, RBI annual reports, Report on Trend and Progress of commercial banks. This information is made available to the public also at cheaper rates. 

7. Promotion of Banking Habits

RBI always takes necessary steps to promote the banking habits among people for economic development of country. RBI has set up many institutions such as Deposit Insurance Corporation 1962, UTI 1964, IDBI 1964, NABARD 1982, NHB 1988 etc. These organizations develop and promote the banking habits among the people. 

8. Export Promotion

RBI always tries to encourage the facilities for providing finance for foreign trade especially exports from India. The Export - Import Bank of India (EXIM), and the Export Credit Guarantee Corporation of India (ECGC) are supported by refinancing their lending for export purpose.

(C) SUPERVISORY FUNCTIONS

1. Granting Licence to Banks

RBI grants licence to banks for carrying its business. RBI also provide licence for opening extension counters, new branches even to close down existing branches.

2. Bank Inspection

RBI has power to ask for periodical information from banks on various components of assets and liabilities.

3. Control Over NBFIs 
The non - bank financial institutions are not influenced by the working of a monitory policy. RBI has a right to issue directives to the NBFIs from time to time regarding their functioning. Through periodic inspection, it can control the NBFIs.
4. Implementation of Deposit Insurance Scheme
The RBI has set up the Deposit Insurance Guarantee Corporation in order to protect the deposit of small depositors. All bank deposits below Rs. 1 Lakh are insured with this corporation. The RBI work to implement the Deposit Insurance Scheme in case of a bank failure.