The Reserve Bank of India (RBI, भारतीय रिज़र्व बैंक) is the central bank of India, and was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. Though originally privately owned, RBI has been fully owned by the Government of India since nationalization in 1949.
Duvvuri Subbarao who succeeded Y. Venugopal Reddy on September 2, 2008 is the current Governor of RBI.
The Reserve Bank of India was set up on the recommendations of the Hilton Young Commission. The commission submitted its report in the year 1926, though the bank was not set up for nine years.
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 with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.
It has 22 regional offices, most of them in state capitals.
Policy rate (2008)
Bank Rate 6.0%.
Repo Rate 9.00%.
Reverse Repo Rate 155.00
Reserve Ratios (2008)
Cash Reserve Ratio 7.5%. (effective october 11th, 2008)
Statutory Liquidity Ratio 25.0%.
Lending or Deposit Rates (2008)
Prime Lending Rate 12.75%-13.25%.
Saving Bank Rate 3.5%
Deposit Rate 7.50%-10.75
Board of directors
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 Act.
On June 27, 2006, the Union Government of India reconstituted the Central Board of Directors of the Reserve Bank of India (RBI) with 13 members, including Azim Premji and Kumar Mangalam Birla.
Other members of the board
- Suresh Tendulkar, Economist and Member, Prime Minister's Economic Advisory Council (to represent Eastern Area Local Board)
- U. R. Rao, former Chairman, ISRO and Chairman Research Council, Physical Research Laboratory, Department of Space (to represent Northern Area Local Board)
- Lakshmi Chand, IAS (Retd.) (to represent Southern Area Local Board)
- Shashi Rekha Rajagopalan, Consultant, Co-operatives
- Suresh Kumar Neotia, Chairman, Ambuja Cement
- A. Vaidyanathan, Madras Institute of Development Studies
- Man Mohan Sharma, FRS, Former Director, Mumbai University Institute of Chemical Technology
- D. Jayavarthanavelu, Chairman and Managing Director, Laxmi Machine Works Ltd.
Those renominated to the board
On 1 July, 2006, in an attempt to enhance the quality of customer service and strengthen the grievance redressal mechanism, the Reserve Bank of India constituted a new department — Customer Service Department (CSD).
- Formulates, implements and monitors the Monetary Policy, announced twice a year.
- Announces the Credit Policy, announced twice a year - in April it announces new policy initiatives, the October pronouncement is a review of the April policy.
- Objective: Maintaining price stability and ensuring adequate flow of credit to productive sectors.
- Maintain optimum Liquidity in the economy.
System of Note issue
- RBI Maintains Minimum Reserve System for Note issue.
This means that RBI can issue any amount of currency notes provided it keeps the minimum statutory limit of Rs.200 crores worth Gold and Securities.
Regulator and supervisor of the financial system
- Prescribes broad parameters of banking operations within which the country's banking and financial system functions.
- Objective: maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective redressal of complaints by bank customers.
Manager of exchange control
- Manages the Foreign Exchange Management Act, 1999.
- Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
Issuer of currency
- Issues and exchanges or destroys currency and coins not fit for circulation.
- Objective: the main objective is to give the public adequate supply of currency of good quality and to provide loans to commercial banks to maintain or improve the GDP.
The basic objectives of RBI are to issue bank notes, to maintain the currency and credit system of the country to utilize it in its best advantage, and to maintain the reserves. RBI maintains the economic structure of the country so that it can achieve the objective of price stability as well as economic development, because both objectives are diverse in themselves.
- Performs a wide range of promotional functions to support national objectives.
- To incubate or establish financial institutions of national importance, for e.g: NABARD, IDBI
- Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.
- Banker to banks: maintains banking accounts of all scheduled banks.
- Owner and operator of the depository (SGL) and exchange (NDS) for government bonds.
There is now an international consensus about the need to focus the tasks of a central bank upon central banking. RBI is far out of touch with such a principle, owing to the sprawling mandate described above.
Major liabilities of commercial banks
Figures below are in millions of Indian Rupees. See
|| Deposits and other Accounts
|| Bills Payable |
|| 173 |
|| 262 |
|| 317 |
|| 446 |
|| 923 |
|| 2,254 |
|| 10,995 |
|| 24,556 |
|| 38,656 |
|| 116,622 |
Major assets of commercial banks
Figures below are in millions of Indian Rupees. See
|| Advances |
|| 5,353 |
|| 7,037 |
|| 12,458 |
|| 21,954 |
|| 46,850 |
|| 106,167 |
|| 272,673 |
|| 623,553 |
|| 1,095,412 |
|| 2,243,308 |
The Tarapore committee is a committee setup by the Reserve Bank of India under the chairmanship of former RBI deputy governor S S Tarapore to "lay the road map" to capital account convertibility.
The five-member committee recommended a three-year timeframe for complete convertibility by 1999-2000.
In March 2006, the Finance Minister of India, P Chidambaram said that the Central government was "within striking distance" of implementing the committee's report.
- During partition, the federal reserve was split by the British Raj to aid India and Pakistan separately. Some claim that Pakistan has never gotten its share to date, which is incorrect. On January 19, 1948, Pakistan received its share of 56 Crores Rupees bullion. Apart from that, Nizam of Hyderabad illegally transferred the funds for the state of Hyderabad to Pakistan, and Pakistan has not yet repaid these funds. Nawab of Junagarh fled with 3 Crore cash, which was government property. When it looked like the British would help India get that money back, the Pakistani government helped Nawab flee to Europe with the money using Pakistani government planes. One of the planes refuelling at Beirut crashed in the Aegean Sea and money was declared lost. This story has led to several modern treasure hunts in that area.