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.

(1935-1951)

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.              

(1951-1967)

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.

(1967-1981)

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.    

 (1981-1997)

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.

Main Functions

Monetary Authority:

•     Formulates, implements and monitors the monetary policy.
•     Objective: maintaining price stability while keeping in mind the objective of growth.

Regulator and supervisor of the financial system:

•     Prescribes broad parameters of banking operations within which the country's banking and financial system functions.
•     Objective: maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public.

Manager of Foreign Exchange

•     Manages the Foreign Exchange Management Act, 1999.
•     Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Issuer of currency:

•     Issues and exchanges or destroys currency and coins not fit for circulation.
•     Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.

Developmental role

•     Performs a wide range of promotional functions to support national objectives.

Regulator and Supervisor of Payment and Settlement Systems:

•     Introduces and upgrades safe and efficient modes of payment systems in the country to meet the requirements of the public at large.
•     Objective: maintain public confidence in payment and settlement system

Related Functions

•     Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.
•     Banker to banks: maintains banking accounts of all scheduled banks.

 Milestones

The Reserve Bank of India is the central bank of the country. Central banks are a relatively recent innovation and most central banks, as we know them today, were established around the early twentieth century.

The Reserve Bank of India was set up on the basis of the recommendations of the Hilton Young Commission. The Reserve Bank of India Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank, which commenced operations on April 1, 1935.

The Bank was constituted to

• Regulate the issue of banknotes
• Maintain reserves with a view to securing monetary stability and
• To operate the credit and currency system of the country to its advantage.

The Bank began its operations by taking over from the Government the functions so far being performed by the Controller of Currency and from the Imperial Bank of India, the management of Government accounts and public debt. The existing currency offices at Calcutta, Bombay, Madras, Rangoon, Karachi, Lahore and Cawnpore (Kanpur) became branches of the Issue Department. Offices of the Banking Department were established in Calcutta, Bombay, Madras, Delhi and Rangoon.

Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve Bank continued to act as the Central Bank for Burma till Japanese Occupation of Burma and later upto April, 1947. After the partition of India, the Reserve Bank served as the central bank of Pakistan upto June 1948 when the State Bank of Pakistan commenced operations. The Bank, which was originally set up as a shareholder's bank, was nationalised in 1949.

An interesting feature of the Reserve Bank of India was that at its very inception, the Bank was seen as playing a special role in the context of development, especially Agriculture. When India commenced its plan endeavours, the development role of the Bank came into focus, especially in the sixties when the Reserve Bank, in many ways, pioneered the concept and practise of using finance to catalyse development. The Bank was also instrumental in institutional development and helped set up insitutions like the Deposit Insurance and Credit Guarantee Corporation of India, the Unit Trust of India, the Industrial Development Bank of India, the National Bank of Agriculture and Rural Development, the Discount and Finance House of India etc. to build the financial infrastructure of the country.

With liberalisation, the Bank's focus has shifted back to core central banking functions like Monetary Policy, Bank Supervision and Regulation, and Overseeing the Payments System and onto developing the financial markets.

Recruitment of variour posts in RBI

RBI recruits Office Attendents, Assistants, Grade B Generalists and also Specialist Officers in Grade A and B both. Grade B is highest entry level job while Assistant is lowest entry level for Graduates into RBI.Grade B is a managerial level job while assistant is a clerical level job. RBI closed the direct recruitment process for grade A post in 1987 .For becoming grade A,you need experience of 3 years in assistant cader and after that there is internal exam for grade A post.

Differences between RBI Grade A and RBI Grade B can be summed up as:

• The exam level is also different for both of them. Grade B has preliminary exam, then mains followed by personal interview.
• This exam is considered to be one of the toughest after civils, while Assistant exam has preliminary and mains exams with low to moderate level of questions followed by Language proficiency test.
• Thier is no personal interview for assistant's. There is a huge difference in pay for both the posts.
• You need to work for atleast 3–5years as assistant to get promoted to Grade A and then 3–5 years again to Grade B.
• Grade A is a lower profile when compared to Grade B. Grade A is Assistant Manager whereas Grade B is Manager.
• Grade A officer is Assistant Manager (Junior Management) and Grade B Officer is Manager (Middle Management).