• The origin of the Reserve Bank can be traced to 1926, when the

Royal Commission on Indian Currency and Finance—also known

as the Hilton-Young Commission—recommended the creation
of a central bank to separate the control of currency and credit
from the government and to augment banking facilities
throughout the country.
• The Reserve Bank of India Act of 1934 established the Reserve
Bank as the banker to the central government and set in
motion a series of actions culminating in the start of operations
in 1935. Since then, the Reserve Bank’s role and functions have
undergone numerous changes—as the nature of the Indian
economy has changed.
 Structure, Organisation and Governance

• Central Board: Includes the Governor,Deputy

Governors and the nominated Directors and a
government nominee-Director.
• Committee of Central Board:
• Oversees the current business of the central bank
and typically meets every week, on Wednesdays.
The agenda focuses on current business, including
approval of the weekly statement of accounts
related to the Issue and Banking Departments
• Board for Financial Supervision: Regulates and
supervises commercial banks, Non-Banking Finance
Companies (NBFCs), development finance institutions,
urban co-operative banks and primary dealers.
• Board for Payment and Settlement Systems:
Regulates and supervises the payment and settlement
systems.
• Sub-committees of the Central Board: Includes those
on Inspection and Audit; Staff; and Building. Focus of
each subcommittee is on specific areas of operations.
• Central Board of Directors by the Numbers
• Official Directors
• 1 Governor
• 4 Deputy Governors, at a maximum
• Non-Official Directors
• 4 directors—nominated by the Central Government to represent each
local board
• 10 directors nominated by the Central Government with expertise in
various segments of the economy
• 1 representative of the Central Government
• 6 meetings—at a minimum—each year
• 1 meeting—at a minimum—each quarter
Local Boards: In Chennai, Kolkata, Mumbai and
New Delhi, representing the country’s four
regions. Local board members, appointed by
the Central Government for four-year terms,
represent regional and economic interests and
the interests of co-operative and indigenous
banks.
 The RBI is made up of:
• 26 Departments: These focus on policy issues in the Reserve
Bank’s functional areas and internal operations.
• 26 Regional Offices and Branches: These are the Reserve Bank’s
operational arms and customer interfaces, headed by Regional
Directors. Smaller branches / sub-offices are headed by a General
Manager / Deputy General Manager.
• Training centres: The Reserve Bank Staff College at Chennai
addresses the training needs of RBI officers; the College of
Agricultural Banking at Pune trains staff of co-operative and
commercial banks, including regional rural banks. The Zonal
Training Centres, located at regional offices, train non-executive
staff.
• Research institutes: RBI-funded institutions to advance training
and research on banking issues, economic growth and banking
technology, such as, National Institute of Bank Management
(NIBM) at Pune, Indira Gandhi Institute of Development Research
(IGIDR) at Mumbai, and Institute for Development and Research
in Banking Technology (IDRBT) at Hyderabad.
• Subsidiaries: Fully-owned subsidiaries include National Housing
Bank (NHB), Deposit Insurance and Credit Guarantee Corporation
(DICGC), Bharatiya Reserve Bank Note Mudran Private Limited
(BRBNMPL). The Reserve Bank also has a majority stake in the
National Bank for Agriculture and Rural Development (NABARD).
 Main Activities of the RBI
• Monetary Authority
• Issuer of Currency
• Banker and Debt Manager to Government
• Banker to Banks
• Regulator of the Banking System
• Manager of Foreign Exchange
• Regulator and Supervisor of the Payment and
Settlement Systems
• Developmental Role
 Monetary Authority
• The basic functions of the Reserve Bank of India are 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.
• - From the Preamble of the Reserve Bank of India Act, 1934

• RBI analyse the movement of a number of indicators including

interest rates, inflation rate, money supply, credit, exchange rate,
trade, capital flows and fiscal position, along with trends in output
to develop policy perspectives.
• There are several direct and indirect instruments that are used in
the formulation and implementation of monetary policy.
 Direct Instruments

• Cash Reserve Ratio (CRR): The share of net demand

and time liabilities that banks must maintain as cash
balance with the Reserve Bank.
• Statutory Liquidity Ratio (SLR): The share of net
demand and time liabilities that banks must maintain
in safe and liquid assets, such as, government
securities, cash and gold.
• Refinance facilities: Sector-specific refinance
facilities (e.g., against lending to export sector)
provided to banks.
 Indirect Instruments

• Liquidity Adjustment Facility (LAF): Consists of daily infusion or

absorption of liquidity on a repurchase basis, through repo (liquidity
injection) and reverse repo (liquidity absorption) auction operations,
using government securities as collateral.
• Open Market Operations (OMO): Outright sales/purchases of
government securities, in addition to LAF, as a tool to determine the
level of liquidity over the medium term.
• Market Stabilisation Scheme (MSS): This instrument for monetary
management was introduced in 2004. Liquidity of a more enduring
nature arising from large capital flows is absorbed through sale of
short-dated government securities and treasury bills. The mobilised
cash is held in a separate government account with the Reserve Bank.
• Repo/reverse repo rate: These rates under the
Liquidity Adjustment Facility (LAF) determine the
corridor for short-term money market interest rates.
In turn, this is expected to trigger movement in
other segments of the financial market and the real
economy.
• Bank rate: It is the rate at which the Reserve Bank
is ready to buy or rediscount bills of exchange or
other commercial papers. It also signals the
medium-term stance of monetary policy.
• The Reserve Bank’s Annual Policy Statements,
announced in April, are followed by three
quarterly reviews, in July, October and
January.
• A detailed background report — Review of
Macroeconomic and Monetary Developments
— is released the day before the policy review.
 Issuer of Currency
• The Reserve Bank is the nation’s sole note issuing
authority. Along with the Government of India, RBI is
responsible for the design and production and overall
management of the nation’s currency, with the goal of
ensuring an adequate supply of clean and genuine notes.
The Reserve Bank also makes sure there is an adequate
supply of coins, produced by the government.
• In consultation with the government, RBI routinely
address security issues and target ways to enhance
security features to reduce the risk of counterfeiting or
forgery.
• The Department of Currency Management in Mumbai,
in cooperation with the Issue Departments in the
Reserve Bank’s regional offices, oversees the
production and manages the distribution of currency.
• Currency chests at more than 4,000 bank branches—
typically commercial banks—contain adequate
quantity of notes and coins so that currency is
accessible to the public in all parts of the country.
• The Reserve Bank has the authority to issue notes up
to value of Rupees Ten Thousand.
 Banker and Debt Manager
to Government
• Managing the government’s banking transactions is a key RBI
role.
• Like individuals, businesses and banks, governments need a
banker to carry out their financial transactions in an efficient and
effective manner, including the raising of resources from the
public.
• As a banker to the central government, the Reserve Bank
maintains its accounts, receives money into and makes payments
out of these accounts and facilitates the transfer of government
funds.
• RBI also act as the banker to those state governments that have
entered into an agreement with us.
• The role as banker and debt manager to government includes
several distinct functions:
• Undertaking banking transactions for the central and state
governments to facilitate receipts and payments and maintaining
their accounts.
• Managing the governments’ domestic debt with the objective of
raising the required amount of public debt in a cost-effective and
timely manner.
• Developing the market for government securities to enable the
government to raise debt at a reasonable cost, provide
benchmarks for raising resources by other entities and facilitate
transmission of monetary policy actions.
 Banker to Banks
• Like individual consumers, businesses and
organisations of all kinds, banks need their own
mechanism to transfer funds and settle inter-bank
transactions—such as borrowing from and lending
to other banks—and customer transactions.
• As the banker to banks, the Reserve Bank fulfills this
role. In effect, all banks operating in the country
have accounts with the Reserve Bank, just as
individuals and businesses have accounts with their
banks.
 Regulator of
the Banking System
• Banks are fundamental to the nation’s financial system. The central bank has
a critical role to play in ensuring the safety and soundness of the banking
system—and in maintaining financial stability and public confidence in this
system.
• As the regulator and supervisor of the banking system, the Reserve Bank
protects the interests of depositors, ensures a framework for orderly
development and conduct of banking operations conducive to customer
interests and maintains overall financial stability through preventive and
corrective measures.
• The Reserve Bank makes use of several supervisory tools:
• On-site inspections
• Off-site surveillance, making use of required reporting by the regulated
entities
• Thematic inspections, scrutiny and periodic meetings
 Manager of Foreign Exchange
• With the transition to a market-based system
for determining the external value of the Indian
rupee, the foreign exchange market in India
gained importance in the early reform period.
• In recent years, with increasing integration of
the Indian economy with the global economy
arising from greater trade and capital flows, the
foreign exchange market has evolved as a key
segment of the Indian financial market.
 Regulator and Supervisor
of Payment and Settlement Systems
• Payment and settlement systems play an
important role in improving
• overall economic efficiency. They consist of all
the diverse arrangements
• that we use to systematically transfer money
—currency, paper instruments
• such as cheques, and various electronic
channels.
 Developmental Role
• This role is, perhaps, the most unheralded
aspect of our activities, yet it remains among
the most critical.
• This includes ensuring that credit
• is available to the productive sectors of the
economy, establishing institutions designed to
build the country’s financial infrastructure,
expanding access to affordable financial services
and promoting financial education and literacy.
• Some of the institutions established by the RBI include:
• Deposit Insurance and Credit Guarantee Corporation (1962), to provide
protection to bank depositors and guarantee cover to credit facilities extended
to certain categories of small borrowers
• Unit Trust of India (1964), the first mutual fund of the country
• Industrial Development Bank of India (1964), a development finance institution
for industry
• National Bank of Agriculture and Rural Development (1982), for promoting
rur`al and agricultural credit
• Discount and Finance House of India (1988), a money market intermediary and
a primary dealer in government securities
• National Housing Bank (1989), an apex financial institution for promoting and
regulating housing finance
• Securities and Trading Corporation of India (1994), a primary dealer