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Reserve Bank of India – An Overview

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Establishment:

The Reserve Bank of India was established on April 1, 1935 under  the Reserve Bank of India Act, 1934. Though initially RBI was privately owned, it was nationalized in 1949. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937.

Objective:

The Main objectives of the Reserve Bank is : “to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.”

Prior to the establishment of the Reserve Bank, the Indian financial system was totally inadequate dual control of currency by the Central Government and of credit by the Imperial Bank of India. The Hilton-Young Commission, therefore ended by setting-up of a central bank — called the Reserve Bank of India — which would regulate the financial policy and develop banking facilities throughout the country. Hence, the Reserve Bank of India was established with this primary object in view.

The fundamental object of the Reserve Bank of India is to discharge purely central banking functions in the Indian money market, i.e., to act as the note- issuing authority, bankers’ bank and banker to government, and to promote the growth of the economy within the framework of the general economic policy of the government, consistent with the need of maintenance of price stability.

Central Board of RBI:

The Reserve Bank’s affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India(RBI)  Act 1934.

Constitution:

The organization and management of RBI is vested on the Central Board of Directors. It is responsible for the management of RBI.Central Board of Directors consist of 20 members. It is constituted as follows.

a) One Governor:

It is the highest authority of RBI. He is appointed by the Government of India for a term of 5 years. He can be re-appointed for another term.

b) Four Deputy Governors:

Four deputy Governors are nominated by Central Govt. for a term of 5 years.

c) Fifteen Directors:

Other fifteen members of the Central Board are appointed by the Central Government. Out of these , four directors,one each from the four local Boards are nominated by the Government separately by the Central Government.

The Central board of directors exercises all the powers of the bank. The Central Board should meet at-least six times in each year and at least once in three months. Usually, the Central Board keeps  a meeting in March every year at New Delhi so as to discuss the budget with the Finance Minister after its presentation in parliament. Similarly, it keeps a meeting in August at Mumbai  in order to pass the Bank’s annual report and accounts.

Local Boards :

The RBI is Southern divided into four regions: the Western, the Eastern, the Northern and the southern regions. For each of these regions there is a Local Board with headquarters in Mumbai,Kolkata,New Delhi and Chennai.

Besides the central board, there are local boards for four regional areas of the country with their head-quarters at Mumbai, Kolkata, Chennai, and New Delhi. Local Boards consist of five members each, appointed by the central Government for a term of 4 years to represent territorial and economic interests and the interests of co-operatives and indigenous banks. The function of the local boards is to advise the central board on general and specific issues referred to them and to perform duties which the central board delegates.

Functions of RBI:

  • Reserve Bank of India is the main monetary authority of the country. It formulates, implements and monitors the monetary policy and thereby plays a key role in maintaining price stability and ensuring adequate flow of credit to productive sectors.
  • RBI is the regulator and supervisor of the financial system in the country. It prescribes broad parameters of banking operations within which the country’s banking and financial system functions.
  • It manages the foreign exchange of the country.
  • Performs merchant banking function for the central and the state governments; also acts as their banker.
  • Maintains banking accounts of all scheduled banks.
  • Issues and exchanges or destroys currency and coins not fit for circulation.

Offices of RBI:

NEW OFFICES:

1. With a view to bestowing focused attention to urban co-operative banking sector in the state of Goa, the Reserve Bank of India has decided to open an Urban Banks Department in Goa at its Panaji Office . The Department has started functioning at the Reserve Bank of India, Panaji, Goa from June 17, 2011. Its functional jurisdiction will cover the entire State of Goa.

2. The Reserve Bank of India (RBI) has opened its sub-office at Agartala on 18th May 2011 . Tripura will be the second State in the North-East region to have an RBI office. The new RBI office is housed at Jackson Gate building in Agartala and will function under the charge of a General Manager. The office is expected to initially focus on development of banking in the State and gradually take up other central banking functions.

Subsidiaries of RBI:

Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL)

The Reserve Bank established BRBNMPL in February 1995 as a wholly-owned subsidiary to augment the production of bank notes in India and to enable bridging of the gap between supply and demand for bank notes in the country. The BRBNMPL has been registered as a Public Limited Company under the Companies Act, 1956 with its Registered and Corporate Office situated at Bengaluru. The company manages two Presses, one at Mysore in Karnataka and the other at Salboni in West Bengal.

Deposit Insurance and Credit Guarantee Corporation (DICGC)

With a view to integrating the functions of deposit insurance and credit guarantee, the Deposit Insurance Corporation and Credit Guarantee Corporation of India were merged and the present Deposit Insurance and Credit Guarantee Corporation (DICGC) came into existence on July 15, 1978.Deposit Insurance and Credit Guarantee Corporation (DICGC), established under the DICGC Act 1961, is one of the wholly owned subsidiaries of the Reserve Bank. The DICGC insures all deposits (such as savings, fixed, current,and recurring deposits) with eligible banks except the following:

1) Deposits of the State Land Development Banks with the State cooperative bank;
2) Any amount due on account of of any deposit received outside India;
3) Any amount, which has been specifically exempted by the corporation with the previous approval of RBI.

Every eligible bank depositor is insured upto a maximum of Rs.1,00,000(Rupees One Lakh) for both principal and interest amount held by him.

Subsidiaries removed: Recently in 2019, RBI sold its entire stake in National Housing Bank( NHB) and National Bank for Agriculture and Rural Development (NABARD) to the government.

NABARD & NHB’s exit 2019:

  • In April 2019, the Government of India took over NABARD in February 2019 and NHB in April 2019 from RBI.The govt has acquired a 100% stake in both these entities.
  • RBI sold NHB for Rs 1450 crores while it sole NABARD for Rs 20 crores to the government.
  • The move was a part of ending cross holding in regulatory institutions & follows recommendation of 2nd Narasimham Committee report of 2001 and also the RBI’s own discussion paper on the same entitled ‘Harmonizing the role and operations of development financial institutions and banks.’

National Housing Bank (NHB)

National Housing Bank was set up on July 9, 1988 under the National Housing Bank Act, 1987. NHB has been established to achieve, among other things, the following objectives:

  1. To promote a sound, healthy, viable and cost effective housing finance system to all segments of the population and to integrate the housing finance system with the overall financial system.
  2. To promote a network of dedicated housing finance institutions to adequately serve various regions and different income groups.
  3. To augment resources for the sector and channelize them for housing.
  4. To make housing credit more affordable.
  5. To regulate the activities of housing finance companies based on regulatory and supervisory authority derived under the Act.
  6. To encourage augmentation of supply of build able land and also building materials for housing and to upgrade the housing stock in the country.
  7. To encourage public agencies to emerge as facilitators and suppliers of serviced land for housing.

 

National Bank for Agriculture and Rural Development (NABARD)

NABARD is an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas. The Regional Rural Banks (RRB) are regulated by NABARD.

 

RBI Governors list:

Sir Osborne Smith (1 April 1935 – 30 June 1937)

Sir James Braid Taylor (1 July 1937 – 17 February 1943)

Sir C. D. Deshmukh (11 August 1943 – 30 June 1949)

Sir Benegal Rama Rau (1 July 1949 – 14 January 1957)

G. Ambegaonkar (14 February 1957 – 28 February 1957)

V. R. Iyengar (1 March 1957 – 28 February 1962)

C. Bhattacharya (1 March 1962 – 30 June 1967)

K. Jha (1 July 1967 – 3 May 1970)

N. Adarkar (4 May 1970 – 15 June 1970)

Jagannathan (16 June 1970 – 19 May 1975)

C. Sen Gupta (19 May 1975 – 19 August 1975)

R. Puri (20 August 1975 – 2 May 1977)

Narasimham (2 May 1977 – 30 November 1977)

Dr. I. G. Patel (1 December 1977 – 15 September 1982)

Dr.Manmohan Singh (16 September 1982 – 14 January 1985)

Ghosh (15 January 1985 – 4 February 1985)

N. Malhotra (4 February 1985 – 22 December 1990)

Venkitaramanan (22 December 1990 – 21 December 1992)

Dr. C. Rangarajan (22 December 1992 – 21 November 1997)

Dr.BimalJalan (22 November 1997 – 6 September 2003)

Dr. Y. V. Reddy (6 September 2003 – 5 September 2008)

Dr. D. Subbarao (6 September 2008 – 3 September 2013)

Dr.Raghuram G. Rajan (4 September 2013- 3 September 2016)

Urjit Patel (4 September 2016 – 10 December 2018)

Shaktikanta Das (12 December 2018- Present)

RBI transfers Rs 1.76 lakh crore from surplus reserve to government of India in August 2019

  • RBI in consultation with the government, had constituted a committee chaired by former RBI governor Bimal Jalan to review the extant economic capital framework of the RBI.
  • The Reserve Bank of India(RBI) approved a record ₹1.76 lakh crore transfer to the government,after it accepted Bimal Jalan committee’s recommendations for the transfer.
  • The ₹1.76 lakh crore transfer to the government includes ₹1.23 lakh crore as dividend to the government and ₹52,637 crore from its surplus capital. 
  • The dividend payment of ₹1.23 lakh crore includes interim dividend of ₹28,000 crore already transferred to the government in February 2019. 

2019 recent news of RBI :

  • RBI in October 23, 2019 granted licence to Vreedhi Financial Services (VFS) to operate as a Non-Banking Financial Company(NBFC).
  • RBI is to operationalise ‘unified departments for supervision and regulation’ with effect from November 1, 2019, to strengthen its oversight of commercial banks, urban co-operative banks (UCBs) and non-banking financial companies (NBFCs).
  • In October, RBI imposed a monetary penalty of Rs 12.88 lakh on Prepaid Payment Instrument (PPI) issuer Balancehero India Private Limited for non-compliance of regulatory guidelines.
  • On October 2019, RBI came up with a new reporting system for all co-operative banks (urban, State & district central) called Central Information System for Banking Infrastructure (CISBI) in which co-op banks will submit information related to opening/ closing/ conversion of branches, offices, non-administratively independent offices (extension counters, satellite offices), and customer service points (ATMs- Automated Teller Machines) in a single proforma online. 
  • In October,  RBI provided license to Credit Saison India,domestic subsidiary of Japanese financial services leader Credit Saison to set up a non-banking financial company(NBFC) in Bengaluru, Karnataka.
  • In October 4, 2019, the RBI has cut the repo rate by 25 basis points to 5.15 percent. The reverse repo rate stands at 4.90%, bank rate and Marginal standing facility rate both at 5.40 %. The CRR is 4% and the SLR is 18.75%.
  • On September 1,2019, the Reserve Bank of India (RBI) permitted  processing of e-mandates on cards for recurring merchant payments. This means that the customer need not go through the two-factor authentication process(custom password generation and OTP password generation) every time a similar transaction is carried out with the same merchant.
  • In August, 2019, The RBI and the government  agreed on the new economic capital framework (ECF) recommended by the committee headed by former RBI governor Bimal Jalan.
  • In July 31,2019 Subir Gokarn, former deputy governor of RBI (2009-12) passed away at the age of 60.