Reserve Bank of India (RBI)
Basic Facts RBI’s Zonal and Regional Presence
1. RBI = India’s central bank, established on 1 1. 4 Zonal Offices: Mumbai (West), Delhi (North),
April 1935 under the RBI Act, 1934. Chennai (South), Kolkata (East).
2. Headquarters shifted from Calcutta (Kolkata) 2. ~22 Regional Offices in major state capitals.
to Mumbai in 1937.
Monetary Policy Committee (MPC)
3. RBI initially privately owned → nationalised on
1 January 1949 under RBI (Transfer to Public Purpose & Functions
Ownership) Act, 1948. 1. Entrusted to fix the benchmark policy rate
4. First Governor: Sir Osborne Arkell Smith (repo rate) to control inflation.
(Australian). 2. Sets the policy stance to maintain:
5. First Indian Governor: Sir C.D. Deshmukh. a. Price stability
6. Current Governor: Sanjay Malhotra b. Economic growth
Historical Context 3. Replaced the earlier Technical Advisory
1. Origin traced to the Hilton Young Commission Committee approach.
(1926) → proposed an Indian central bank. Inflation Targeting Framework
2. RBI acted as central bank for: 1. Adopted flexible inflation targeting: Official
a. Burma (Myanmar) till April 1947. target: 4% CPI inflation ± 2% band (2% – 6%).
b. Pakistan till June 1948. 2. Monetary Policy reviewed: At least 4 times a
3. India = first British colony to establish a year.
central bank. 3. RBI bound to implement MPC decisions.
Objectives of RBI Composition of MPC
1. Monetary Stability: Control inflation, ensure 1. Total Members: 6
credit flow. a. RBI Governor → Chairperson (ex-officio)
2. Financial Stability: Supervise banks and b. Deputy Governor (in charge of monetary
financial institutions. policy)
3. Currency Management: Issue and regulate c. One RBI official nominated by RBI’s Central
currency. Board
4. Economic Growth: Support GDP growth via d. Three external members nominated by
policy tools. Government of India
5. Regulation of Financial Institutions: Supervise 2. Tenure of external members: 4 years (no
banks and NBFCs. reappointment).
6. Developmental Role: Promote financial 3. Decisions taken by majority vote.
inclusion, rural credit, digital payments. 4. In case of a tie: The Governor has a casting
Structure of RBI vote.
1. Managed by Central Board of Directors (21 Meeting Protocol
members) appointed by Government of India: 1. Quorum: Minimum 4 members present.
a. Governor 2. Either Governor or Deputy Governor must be
b. Up to 4 Deputy Governors present.
c. 10 Directors from various sectors 3. MPC decisions on repo rate → binding on RBI.
d. 4 Regional Board representatives Key Terms
e. 2 Government officials 1. Repo Rate: Rate at which RBI lends money to
commercial banks against government
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securities. Lowering it makes loans cheaper, 2. Issues government securities.
encouraging spending; raising it controls Banker to Banks
inflation. 1. Lender of last resort.
2. Reverse Repo: Rate at which RBI borrows 2. Maintains CRR accounts for commercial banks.
funds from banks, absorbing excess liquidity.
Key RBI Publications
Banks earn safe returns by parking surplus
funds, helping control inflation and money 1. Annual Report: Review of RBI operations +
supply. economy.
2. Monetary Policy Report (MPR): Inflation
3. CRR (Cash Reserve Ratio): Percentage of total
deposits banks must keep as cash with RBI. It projections, policy stance.
3. Financial Stability Report (FSR): Systemic risks
ensures liquidity and controls money supply,
reducing banks’ lending capacity when raised. in banking/financial sector.
4. Handbook of Statistics on Indian Economy:
4. SLR (Statutory Liquidity Ratio): Percentage of
deposits banks must maintain in liquid assets Detailed data for research.
like cash, gold, or government bonds. It Acts Administered by RBI
1. Reserve Bank of India Act, 1934
ensures bank solvency and regulates credit
2. Banking Regulation Act, 1949
expansion in the economy.
3. FEMA, 1999
5. Open Market Operations (OMO): RBI’s buying
4. Payment and Settlement Systems Act, 2007
or selling of government securities in the
5. Securitisation Act, 2002
market to regulate liquidity. Buying injects
6. Government Securities Act, 2006
funds into the system; selling absorbs excess
7. Credit Information Companies (Regulation)
money supply.
Regulator of Financial System Act, 2005
8. Factoring Regulation Act, 2011
1. Supervises banks, NBFCs, cooperative banks.
2. Introduced platforms like: e-Kuber → real-time
RBI Surplus Transfer
1. RBI earns surplus from:
core banking system for government
a. Interest on government securities
transactions.
b. Forex operations
Manager of Foreign Exchange
2. Surplus = Income – Expenses
1. Manages Foreign Exchange Management Act
3. Part transferred to:
(FEMA), 1999.
a. Government of India as dividend
2. Maintains currency stability and oversees forex
b. Retained as contingency reserve.
markets.
Currency Issuer RBI Autonomy
1. Meant to be independent, especially in:
1. Sole issuer of currency notes (except Re.1 →
a. Monetary policy decisions
Ministry of Finance).
b. Banking supervision
2. Recently launched CBDC (Digital Rupee / e₹)
2. Section 7(1) of RBI Act, 1934: Government can
pilots in wholesale and retail.
Banker to Government direct RBI in public interest → Source of
1. Manages government accounts and public
occasional tension between government and
debt. RBI.
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Q1. Financial sector reforms in India consist of: [56th to 59th B.P.S.C. 2015]
a) Lowering down of CRR and SLR
b) Entry of private firms in insurance sector
c) Deregulation of interest rates
d) All of the above
The financial sector reforms refer to steps taken by the Government to reform the banking system, capital
market, government debt market, foreign exchange market etc. The financial sector reforms in India
mainly consist of:
1. Lowering down of CRR and SLR
2. Deregulation of deposit and lending interest rates
3. Entry of private firms in banking and insurance sector
4. Reforms related to non-performing assets (NPA)
5. Elimination of direct or selective credit controls
Q2. In Indian currency, the one-rupee note is issued under the signature of: [48th to 52nd B.P.S.C. 2008]
a) Governor of Reserve Bank of India
b) President of India
c) Finance Secretary, Ministry of Finance, Govt. of India
d) Finance Minister, Govt. of India
Q3. If the Cash Reserve Ratio is lowered by the RBI, its impact on credit creation will be: [48th to 52nd
B.P.S.C. 2008]
a) Increase
b) Decrease
c) No impact
d) None of the above
Student Notes ✍
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