RBI AND ITS ROLE

The Reserve Bank of India (RBI) regulates the whole Indian banking system. Since banking and financial services deal with public funds, it is essential to have control and regulation over them in order to build, preserve, and increase public trust in these organizations. At the same time, depositors’ and investors’ interests must be protected. It is also vital to ensure that banks are fair and efficient, as well as that they follow the industry regulations.

Establishment:-

In accordance with the Reserve Bank of India Act, 1934, the Reserve Bank of India (RBI) was created on April 1, 1935¹. Since 1937, the Reserve Bank has been headquartered in Mumbai.

Preamble:-

The Preamble of the Reserve Bank of India 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.”

The Primary Goals of RBI:

• Maintaining monetary stability in order to provide welfare measures to the general public.
• To ensure the financial stability and soundness.
• Ensure that payment and settlement systems are stable, secure, and efficient.
• To ensure that the financial system’s credit extends broadly in line with the government’s national aims.
• To maintain price stability in the economy. The money supply and credit distribution must be regulated.
• To encourage the growth of financial markets and systems in order to ensure that they operate efficiently.

Legal Framework of the Reserve Bank of India (RBI)

The Reserve Bank of India (RBI) operates under the following key Acts and Regulations:²

1. Reserve Bank of India Act, 1934
   • Establishes RBI as the central bank and defines its functions.
   • Governs monetary policy, currency issuance, and banking regulations.
2. Public Debt Act, 1944
   • Regulates government borrowing and debt management.
3. Government Securities Regulations, 2007
   • Provides rules for issuing and managing government securities.
4. Banking Regulation Act, 1949
   • Empowers RBI to supervise and regulate commercial banks.
   • Covers licensing, governance, and operations of banks.
5. Foreign Exchange Management Act (FEMA), 1999
   • Replaced FERA (1973) to liberalize forex controls.
   • Regulates foreign trade, investments, and exchange transactions.
6. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002
   • Allows banks/NBFCs to recover NPAs (bad loans) without court intervention.
7. Credit Information Companies (Regulation) Act, 2005
   • Governs credit bureaus (like CIBIL) to ensure transparency in credit reporting.
8. Payment and Settlement Systems Act, 2007
   • Authorizes RBI to regulate payment systems (UPI, NEFT, RTGS, etc.).

Main Functions of RBI³

1) Issue of Bank Notes: In India, the Reserve Bank of India (RBI) is the only authority for issuing currency notes.

2) Banker to the Government: Banking services are provided to both the central and state governments, including fund collection and transfer, as well as debt management.

3) Bankers’ Bank: The Reserve Bank of India (RBI) serves as a central bank for all bankers in the country. Commercial and cooperative banks must comply with statutory reserve requirements as well as reporting requirements. The reserves include the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR), which must be maintained at the rates set as a proportion of Net Demand and Time Liabilities from time to time. Reserves must be maintained at these rates by all banks, whether Scheduled or Non-Scheduled.

4) Supervision of Banks: Banking supervision is now assigned to the Board of Financial Supervision, which is controlled by the RBI. The RBI’s supervisory powers include issuing licenses for new banks and branches, prescribing minimum capital and reserves, maintaining CRR and other reserves, inspecting the operations of Indian banks, conducting investigations into complaints, irregularities, and frauds involving banks and their customers, and controlling and approving appointments, re-appointments, and terminations of CEOs.

5) Development of financial system: This is one of RBI’s most essential tasks, and it has established specialized financial institutions such as NABARD (National Bank for Agriculture and Rural Development), the Export-Import Bank of India, and the Deposit Insurance and Credit Guarantee Corporation (DICGC) of India over the years. The RBI has also launched a number of initiatives, including the Bill Market Scheme, Lead Bank Scheme, Inventory Standards for Bank Credit, and Credit Authorization.

6) Custodian of Foreign Reserves: The Reserve Bank of India (RBI) has been tasked with preserving the rupee’s external value in relation to international currencies by regulating the foreign exchange market in India. RBI’s current powers are derived from the Foreign Exchange Management Act (FEMA), under which it is responsible for exchange controls, the management of the rupee’s exchange rate with foreign currencies, and foreign exchange reserves.

7) Monetary Authority: RBI uses a variety of methods to control the money supply in the economy, including the Repo Rate, Bank Rate, CRR, SLR, Open Market Operations, and Credit Control Measures.

Structure of RBI:

• Governor → Deputy Governor → Executive Director → Principal Chief General Manager → Chief General Manager → General Manager
• Deputy General Manager → Asst General Manager → Manager → Asst. Manager → Support Staff

The RBI has established a new department: For financial market surveillance, the Reserve Bank of India established a new department called the Financial Market Department on July 6, 2005.

In the future, this newly formed department will separate debt management and monetary operations. This department will also be responsible for designing and monitoring money market instruments.

Annual Report – The Reserve Bank of India’s annual report is a statutory report that is published every year. The Indian economy is valued and has progressed in this research.

With the formation of the Monetary Policy Committee (MPC) in 2017, the RBI’s monetary function has changed slightly in that the exclusive right to set benchmark rates. In addition, the RBI’s principal focus is now on inflation monitoring. Growth is dependent on a number of government policies and activities.

FAQs

1. https://rbi.org.in/Scripts/Project1.aspx ↩︎
2. https://www.rbi.org.in/…organisation.aspx#LF ↩︎
3. https://dspmuranchi.ac.in/pdf/Blog/…INDIA1.pptx ↩︎