RBI

BY:YATIN THUKRAL
BBA(G)-A
Reserve Bank Of India
The RBI or Reserve Bank of India is considered as one of the nationally important
institutions and the cornerstone of the Indian economy. The RBI is a member of the
International Monetary Fund (IMF) alongside other national banks belonging to the
different countries of the world.
■ Based on the strategies developed by Dr. Ambedkar in his book “The Problem of the Rupee –
Its Origin & Its Solution” the concept of RBI was formulated.
■ The “Royal Commission on Indian Currency & Finance”, also known as Hilton Young
Commission, suggested the formulation of the RBI.
■ The RBI regulates the currency and the credit system in the country.
■ The RBI was completely privately-owned before being nationalized in the year 1949. It also
became a member bank of the Asian Clearing Union.
■ The Reserve Bank of India is primarily responsible for protecting the interests of the
depositors, maintaining the confidence of the public in the system, and offering cost-effective
banking services in the form of commercial banking and cooperative banking.
History Of RBI
■ The Reserve bank of India was set up on the basis of the recommendations of the Hilton
■ Young Commission.
■ It was started as Share-Holder Bank on April 1, 1935 with a paid up capital of 5 crs
■ 
 Initially it was located in Kolkata.
■ 
 It moved to Mumbai in 1937
■ The Bank was constituted to:
Regulate the issue of bank note
Maintain reserves with a view to securing money stability
To operate the credit and currency system of the country to its advantage
■ Later on in 1949 the bank was nationalized and is fully owned by the Government of India
■ Its first Governor was Sir Osborne A. Smith (1st
April 1935 to 30th June 1937)
 STRUCTURE
OF RBI
Functions Of RBI
■ Monetary Authority: Formulates, Implements and monitors the monetary policy for maintaining price stability, keeping
inflation in check and ensuring adequate flow of credit to productive sectors
■ Regulator and supervisor of the financial system: lays out parameters of banking operations within which the country's
banking and financial system functions for - (1) maintaining public confidence in system and (2) protecting depositors
interest and providing cost-effective banking services to the general public.
■ Manager of Foreign Exchange: RBI manages forex under the FEMA- Foreign Exchange Management Act, 1999. It
facilitate external trade & payment and also promote development of foreign exchange market in India.
■ Issuer of Currency: RBI issues and exchanges currency as well as destroys currency & coins not fit for circulation
to ensure that the public has adequate quantity of supplies of currency notes and in good quality.
■ Developmental Role : RBI performs a wide range of promotional functions to support national objectives. Under
this it setup institutions like NABARD, IDBI, SIDBI, NHB, etc.
■ Banker to the Government: Performs merchant banking function for the central and the state governments, also
acts as their banker.

■ Banker to banks: An important role and function of RBI is to maintain the banking accounts of all scheduled banks
and acts as banker of last resort. It also act as a agent of Government of India in the IMF
Departments Of RBI
To carry out its functions/operations smoothly and efficiently, the Reserve Bank of India has the
following departments:
1. Banking Department: The Banking Department is responsible for rendering the bank's services as a
banker to the Government and to the banks. It consists of four sub-divisions: Public Accounts
Department, Public Debt Department, Deposit Accounts Department and Securities Department.
2 Issue Department: The Issue Department is concerned with the proper and efficient management of
the note issue. For the conduct of monetary transactions, the country has been divided into 14
circles of issue, each having an Office of Issue.
3 Department of Currency Management: This department is concerned with the forecasting of the long-
term requirements of the currency, indenting and allocation of currency notes to various branches
of the Issue Department taking into account the demand pattern, storage facilities, etc. It is
headed by the Chief Officer.
4 Department of Expenditure and Budgetary Control: This department is concerned with the
preparation of the bank's budget and monitoring of the expenditure of the different units. It is
headed by the Financial Controller.
5 Department of Government and Bank Accounts: This department is concerned with the
maintenance and supervision of the bank's accounts in the Issue and the Banking Departments
and the compilation of weekly statements of affairs and the Annual Profits & Loss Account and
Balance Sheet. It is headed by the Chief Accountant.
6. Exchange Control Department The Exchange Control department is responsible for
controlling foreign exchange transactions and maintaining exchange rate stability.
7. Department of Banking Operations and Development This Department was entrusted
with the responsibility of the supervision, control and development of the commercial
bank system in the country. Till July 1982, it was also concerned with the Lead Bank
Scheme and bank credit to the priority sectors.
Monetary Policies of RBI
■ The monetary policy is a policy formulated by the central bank, i.e., RBI (Reserve Bank of
India) and relates to the monetary matters of the country.
■ The various instruments of monetary policy include variations in bank rates, other
interest rates, selective credit controls, supply of currency, variations in reserve
requirements and open market operations
■ Monetary policy committee reviews it atleast 4 times a year i.e every three
months(quarterly).
Tools of Monetary Policies
■ Reverse Repo Rate

 Reverse repo rate is the short term borrowing rate in which commercial
bank Park their surplus in RBI
An increase in the reverse repo rate means that the banks will get a higher
rate of interest from RBI.
■ Statutory Liquidity Ratio(SLR)
Banks are required to maintain liquid assets in the form of gold, cash
and approved securities.
Higher liquidity ratio forces commercial banks to maintain a larger proportion
of their resources in liquid form and thus reduces their capacity to grant loans
and advances, thus it is an anti-inflationary impact.
■ Repo Rate
It is the rate at which the RBI lends money to the commercial banks for a short-
term (a maximum of 90 days)
Repo is a term for Repurchase.
When the repo rate increases, borrowing from RBI becomes more expensive.
■ Bank Rate
The 'standard rate at which RBI is prepared to buy or rediscount bills
of exchange or other commercial papers eligible for purchase.
The bank rate is not used to control money supply, but penal rates continue to
be linked to the bank rate. If a bank fails to meet SLR or CRR requirements then
the RBI will impose a penalty of 300 basis points above bank rate.
■ Cash Reserve Ratio
CRR refers to the ratio of bank's cash reserve balances with RBI with reference to
the bank's net demand and time liabilities to ensure the liquidity and solvency of
the scheduled banks.
Conclusion
■ In conclusion, the Reserve Bank of India (RBI) plays a pivotal role in shaping India's economic
landscape and ensuring financial stability. Through its monetary policy interventions,
regulatory oversight, and initiatives for financial inclusion and innovation, the RBI strives to
foster sustainable growth, maintain price stability, and enhance the resilience of the financial
system.
■ Recent developments in the RBI reflect its proactive response to emerging challenges, such
as the COVID-19 pandemic, by implementing measures to support businesses, individuals,
and the broader economy. Additionally, the RBI's focus on digital payments, green finance,
and fintech innovation underscores its commitment to driving financial inclusion, promoting
sustainability, and embracing technological advancements.
■ Looking ahead, the RBI faces various opportunities and challenges, including the need to
navigate economic uncertainties, address evolving risks, and foster inclusive and sustainable
growth. By continuing to adapt its policies, regulatory framework, and operational strategies,
the RBI aims to remain agile and effective in fulfilling its mandate as India's central bank.
■ As a cornerstone of India's financial architecture, the RBI's efforts are instrumental in
ensuring a stable and resilient financial system that fosters prosperity and well-being for all
stakeholders.