Inception and Evolution of RBI

About Reserve Bank of India

The Reserve Bank of India is in charge of ensuring economic stability and regulating India’s financial markets. The Reserve Bank of India is the major financial regulator and central bank of the country. It was established by the Reserve Bank of India Act 1934 and began operations on 1 April 1935. INITIALLY, the RBI was private, but after India’s 1947 declaration of independence from the United Kingdom, it was nationalized in 1949. The RBI’s current role as India’s central bank is to maintain the country’s monetary stability by regulating the economy, issuing currency, supporting growth, and monitoring financial institutions.

The RBI is governed by a governor  appointed to four-year terms. The RBI is headquartered in Mumbai, with regional boards in Calcutta, Chennai, and New Delhi and 27 regional offices across the country. Apart from its original legislation (the Reserve Bank of India Act 1934), the RBI is governed by the Banking Regulation Act 1949, the Government Securities Act 2006, and the Payment and Settlement Systems Act 2007.

 Organizational structure

1.     Governor
2.     Deputy Governor
3.     Executive Directors
4.     Principal Chief General Manager
5.     Chief General Managers
6.     General Managers
7.     Deputy General Managers
8.     Assistant General Managers
9.     Managers
10.   Assistant Managers
11.   Support Staff

The objective of forming RBI

The Reserve Bank’s aims are stated in the Preamble to the Reserve Bank of India Act, 1934, as “to regulate the issue of banknotes and the holding of reserves to maintain India’s monetary stability and generally manage the country’s currency.

The Reserve Bank of India was introduced with the primary goal of overseeing all of India’s banks. The purpose was to keep both the reserves and the printing of banknotes under control; it was done to ensure financial stability, work the nation’s credit system and currency to its maximum benefit, and direct the country’s various financial functions in the money market. It attempted to boost the country’s economic prosperity by implementing multiple government structures and policies.

 Functions of RBI

Under the board’s control for Financial Supervision, the RBI executes its supervisory functions. Mr. Shaktikanta Das,  25th Reserve Bank of India Governor, 2021. He is in charge of all RBI operations.

 Issuing currency

RBI has sole jurisdiction to issue money in India because it is a central bank. The Reserve Bank of India has an “Issue Department” department that deals with money issues. The Reserve Bank of India (RBI) provides money to the economy under particular conditions. For example, a percentage of the total money supply will be retained by RBI in the form of gold, bullion, and other assets. They also have the ability to obliterate old banknotes.

Note:  The RBI issues denominations of two, five, ten, twenty, fifty, one hundred, five hundred, and one thousand. Previously, greater denomination notes were also issued.

 Government securities

Different financial institutions, such as commercial banks, must invest a certain percentage of their total assets and liabilities in government securities. The RBI manages institutional investments. These include-

• The market’s smooth operation
• Large quantities are readily available.
• Not prone to large and rapid changes
• Investments with adequate liquidity

Bankers to banks

One of the RBI’s primary non-monetary responsibilities is leading and directing all commercial banks and non-bank financial companies in the country. Each bank is required to keep a portion of its reserves in liquid cash with the RBI. These commercial banks turn to the RBI for assistance in times of financial distress. That’s when the RBI steps in to save them, which is why it’s known as the ‘Lender of Last Resort.’  

A foreign exchange controller

When it comes to Foreign Exchange Operations, the RBI serves as the government’s authorized dealer in foreign exchange, gold coins, and bullion, among other things. RBI is the authorized agent in charge of the country’s foreign exchange operations. The RBI also ensures the Balance of Trade and the Balance of Payment Accounts.

 RBI’s other miscellaneous function

RBI executes a variety of promotional activities in support of national goals.

• Conducts merchant banking services for the federal and state governments, as well as acting as their banker
• The Reserve Bank of India collects data about the Indian economy and disseminates it through the media.
• The RBI has specialist institutions for young people who are interested in banking.
• RBI has pioneered many new disciplines of study. One of them is the Pune College of Agricultural Finance.

 Policies of the Reserve Bank of India

The Repo Rate: The rate at, RBI loans money to other banks for a short period. 

The Reverse Repo Rate (RRR): The rate at , RBI borrows money from banks for a short period.They utilize this strategy to reduce inflation.

The Cash Reserve Ratio (CRR): The percentage of a bank’s total deposit must be kept in liquid cash at the Reserve Bank of India.

SLR (statutory liquidity ratio): in addition to the cash reserve ratio, banks must have liquid assets such as gold and approved securities on hand.

Conclusion

To control and regulate the movement of money in the market, the RBI employs both quantitative and qualitative measures. Aside from the functions listed above, the RBI also has other obligations. It has a significant part in the Indian economy. Even a minor adjustment in them will have a long-term impact on economic conditions.