The central banking institution of India that controls the monetary policy of Indian currency (rupee) and currency reserves of US$ 300.21 billion is called as the Reserve Bank of India (RBI). The RBI was set up on 1st April, 1935, a time when Bruisers ruled in India. It lies in accordance with provisions of the Reserve Bank of India Act, 1934 and plays an eminent part in various government development strategies. It was nationalized in the year 1949 and is currently a member of Asian Clearing Union.
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A dramatic economic turbulence after the First World War shook up the world. India was no exception to it. In response and on the recommendations of the Hilton-Young Commission the Reserve Bank of India was established. Though the Hilton-Young commission submitted the report in 1926, it took around nine more years to set up RBI. Its basic functions as described by the Preamble of the Reserve Bank of India are- to regulate the issue of bank notes, to keep reserves with a view to secure monetary stability in India and to operate the currency and credit system in the best interests of the country.
Initially established in Kolkata, Bengal, the central office of the Reserve Bank of India was later permanently moved to Mumbai in the year 1937. Though initially, RBI was set up as a shareholders’ bank, it has been completely owned by the government of India since its nationalization in 1949.
The main governing body of RBI is the “Central Board of Directors”. These directors are appointed by the Government of India for the tenure of 4 years. This board consists of a governor, four deputy governors, four directors that represent the regional boards, and ten more directors from various fields. Being the 22nd link of the chain, Dr. Subbarao is currently serving as the Governor of RBI.
RBI consists of four regional representations- North in New Delhi, South in Chennai, East in Kolkata and West in Mumbai. These representations are formed by five members that are appointed for 4 years by the central government. Apart from this there are 22 branch offices of RBI all over the country. RBI also has two training colleges for its officers, namely Reserve Bank Staff College located at Chennai, Tamil Nadu and College of Agricultural Banking situated at Pune, Maharashtra. There also exist four Zonal Training Centres at Belapur, Chennai, Kolkata and New Delhi.
The Bank has the sole right to issue bank notes of all denominations, entitled Under Section 22 of the Reserve Bank of India Act. The distribution of one rupee notes, one rupee coins and small coins all over the country is undertaken by RBI as an agent of the Government of India. It has a separate Issue Department which is responsible for the issue of currency notes. Ensuring a smooth flow of functioning, assets and liabilities of the Issue Department are kept separate from those of the Banking Department. RBI issues, exchanges and destroys currency and coins that are not fit for circulation with an objective of giving adequate supply of currency of good quality to the public.
Besides being the main monetary authority of the country RBI also acts as the bank of the state and national governments. Monetary policies are formulated, implemented and monitored by RBI which is also entitled to ensure an adequate flow of credits to productive sectors.
The Reserve bank of India also has certain non-monetary functions such as supervision of banks and promotion of sound banking in India besides its traditional central banking functions. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have empowered RBI with wide powers of supervision and control over commercial and co-operative banks. These powers include licensing and establishments, liquidity of assets, amalgamation, branch expansion, reconstruction, management & methods of working, and liquidation. The RBI is authorized to carry out periodical inspections of the banks and to ask for returns and required information from them. Due to the nationalization of 14 major Indian scheduled banks in 1969, RBI has an additional responsibility for directing the growth of banking and credit policies.
Indeed, RBI’s supervisory functions have helped a lot in improving the standard of banking in India and also to improve in terms of the methods of their operation.
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