Reserve Bank of India

The Reserve Bank of India is the central bank of India, was established on April 1, 1935 during the British-Raj in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Kolkata, Bengal, but was permanently moved to Mumbai in 1937. Though originally privately owned, the RBI has been fully owned by the Government of India since nationalization in 1949.

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.

Main 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.

Main objectives

Monetary Authority Formulates implements and monitors the monetary policy. Objective: maintaining price stability and ensuring adequate flow of credit to

productive sectors.

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 redresses 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 bank to maintain or improve the GDP (Gross Domestic Product).

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.

Developmental role Performs a wide range of promotional functions to support national

objectives.

Related functions Banker to the Government: performs merchant banking function for the

central and the state governments; also acts as their banker. Bank to banks: maintains banking accounts of all scheduled banks

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. The recent financial turmoil world over, has however, vindicated the Reserve Bank's role in maintaining financial stability in India.

Central Board:The RBI is monitored by a central board of directors. The board is appointed by the Government of India in accordance with the RBI act.

Local Boards

Local Boards are present in the four metros of Mumbai, Calcutta, Chennai and New Delhi.

Local Board consists of five members.

Local Board is appointed by the Central Government.

Local Board is for a period of four years.

Financial Supervision:

The RBI accomplishes the role of financial supervision through the Board for Financial Supervision (BFS).The BFS was initiated in 1994.

Functions of BFS Streamlining the system of bank inspections. Induction of offsite surveillance.

Consolidating the role of statutory auditors and

Consolidating the internal defenses of supervised institutions.

Current Focus of BFS Supervise financial institutions. Consolidate accounts.

Deal with legal issues in bank frauds.

Variance in assessment of nonperforming assets and

Supervisory rating model for banks.

Legal Framework:

Umbrella Acts Reserve Bank of India Act 1934 governs the Reserve Bank functions. Banking Regulation Act 1949 governs the financial sector.

Governor of RBI:

Dr. Duvvuri Subbarao is the current Governor of RBI since September 2, 2008. Who succeeded Yaga Venugopal Reddy.

It has 22 regional offices, most of them in state capitals.

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 Y. H. Malegam, Chartered Accountant, (to represent Western Area Local

Board) H. P. Ranina, Supreme Court Advocate

Ashok S. Ganguly, Member, Investment Commission and Chairman, ICICI OneSource

Submitted by:

Dewasish Ghoshal (PGDMA)

NAARM, Hyderabad