Reserve Bank of India


The economic efficiency and  stability of a country is dependent on the payment and settlement system in that country. As a result, the central bank, have been regularly and consistently revising the policies to ensure the development of payment system at the national level. The responsibility of a central bank of any given country is to ensure that the payment systems at the national level are developed. In India, this responsibility is entrusted with the Reserve Bank of India (RBI).

Establishment of the RBI

The Reserve Bank of India (RBI) was established in 1935 in Kolkata according to the Reserve Bank of India Act of 1934, and was permanently moved to Mumbai in 1937, the RBI is fully owned and operated by the Government of India. The Central Board of Directors which comprises of 21 members appointed by the Government of India governs the operation of the RBI.

 The Central Board of Directors consists of the Official Directors and  the Non-Official Directors and they are as follows:

  • The Official Directors include the Governors appointed for four years with an addition of 4 Deputy Governors
  • The Non-Official Directors comprise of 10 Directors elected from multiple fields along with 2 Government Officials.

Major functions of the RBI are as follows:

1. Issue of Bank Notes:

The Reserve Bank of India has the only right to issue currency notes in India except for the one rupee notes which are issued by the Ministry of Finance. Currency notes issued by the Reserve Bank are declared unlimited legal tender throughout the country.

2. Banker to Government:

As a banker to the government the Reserve Bank manages the banking needs of the government. By maintaining the government’s deposit accounts, Collecting the receipts of funds and also making payments on behalf of the government and represents the Government of India as the member of the IMF and the World Bank.

3. Custodian of Cash Reserves of Commercial Banks:

The commercial banks hold deposits in the Reserve Bank and the Reserve Bank has the custody of the cash reserves of the commercial banks.

4. Custodian of Country’s Foreign Currency Reserves:

The Reserve Bank of India, is the custodian of the country’s foreign exchange reserves and is vested with the responsibility of managing their investment. The legal provisions governing management of foreign exchange reserves are laid down in the Reserve Bank of India Act, 1934.

5. Lender of Last Resort:

When the commercial banks face financial crisis they approach the Reserve Bank  as a sort of last resort to which the reserve Bank helps the commercial banks by providing the financial assistance in form of credit.

6. Controller of Credit:

It is the duty of the RBI to control the credit through the CRR, bank rate and open market operations. As banker’s bank, the RBI facilitates the clearing of cheques between the commercial banks and helps the inter-bank transfer of funds.

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