History of RBI
History of any institution aims at documenting, collating, compiling and presenting a comprehensive, authentic and objective study of the working of that institution, the events, the policies, the institutional development of the organisation. The institutional history of the central bank reflects, in some ways, the monetary history of the country, bringing down to concrete and human terms the policies, the considerations, the mistakes, the thought processes, the decision making and the broader canvas of political economy of the times.
The history of Reserve Bank of India thus not only traces the evolution of the central banking in India but also serves as a work of reference and an important contribution to the literature on monetary, central banking and development history of India.
The Reserve Bank of India was set up on April 1, 1935. It is one of the few central banks to document its institutional history. So far, it has brought out four volumes of its history. Volume 1, covering the period from 1935 to 1951, was published in 1970. It details the initiatives taken to put in place a central bank for India and covers the formative years of the Reserve Bank. It highlights the challenges faced by the Reserve Bank and the Government during World War II and the post-independence era.
This period heralded an era of planned economic development in India. It includes the initiatives taken to strengthen, modify and develop the economic and financial structure of the country. Apart from the Reserve Bank’s role as the monetary authority, it highlights the endeavour to establish an institutional infrastructure for agricultural and long-term industrial credit in India.
An important event of this period was nationalization of fourteen banks in 1969, leading to spread of banking in country’s hinterland. The issues of safety and prudence in banking also gained prominence. Internationally, the abandonment of the Bretton Woods system in 1971 posed serious challenges for the developing countries including India.
The 1980s were characterized by an expansionary fiscal policy accompanied by automatic monetization of budgetary deficit that strained the conduct of monetary policy. Similarly, a highly regulated banking system impaired efficiency. The domestic macroeconomic imbalances combined with deteriorating external conditions triggered the balance of payments (BoP) crisis of 1991. Subsequent reforms ushered in far reaching changes not only in the economy but also in central banking. It includes the implementation of structural and financial sector reforms: fiscal correction and phasing out of automatic monetisation; development of government securities market; and greater integration among money, securities and foreign exchange markets. It also covers the transformation in banking with liberalisation and improvement in credit delivery. At the same time, the Reserve Bank had to contend with a securities scam which led to the introduction of better control systems and strengthening of the payment and settlement systems.