The Reserve Bank of India, chiefly known as RBI, is India's
central bank
A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union,
and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...
and
regulatory body
A regulatory agency (regulatory body, regulator) or independent agency (independent regulatory agency) is a government authority that is responsible for exercising autonomous dominion over some area of human activity in a licensing and regulatin ...
responsible for
regulation
Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. For ...
of the
Indian banking system. It is under the
ownership
Ownership is the state or fact of legal possession and control over property, which may be any asset, tangible or intangible. Ownership can involve multiple rights, collectively referred to as title, which may be separated and held by different ...
of
Ministry of Finance A ministry of finance is a part of the government in most countries that is responsible for matters related to the finance.
Lists of current ministries of finance
Named "Ministry"
* Ministry of Finance (Afghanistan)
* Ministry of Finance and Eco ...
,
Government of India
The Government of India (ISO: ; often abbreviated as GoI), known as the Union Government or Central Government but often simply as the Centre, is the national government of the Republic of India, a federal democracy located in South Asia, c ...
. It is responsible for the
control, issue and maintaining supply of the
Indian rupee
The Indian rupee ( symbol: ₹; code: INR) is the official currency in the republic of India. The rupee is subdivided into 100 ''paise'' (singular: ''paisa''), though as of 2022, coins of denomination of 1 rupee are the lowest value in use wh ...
. It also manages
the country's main payment systems and works to promote its economic development.
Bharatiya Reserve Bank Note Mudran
Bharatiya Reserve Bank Note Mudran (BRBNM) is a specialised division of Reserve Bank of India which is under the ownership of Ministry of Finance of the Government of India. It mints Indian bank notes. It was established in 1995 to address the ...
(BRBNM) is a specialised division of RBI through which it prints and mints
Indian currency notes (INR) in two of its currency printing presses located in
Nashik
Nashik (, Marathi: aːʃik, also called as Nasik ) is a city in the northern region of the Indian state of Maharashtra. Situated on the banks of river Godavari, Nashik is the third largest city in Maharashtra, after Mumbai and Pune. Nashik ...
(Western India) and
Dewas
Dewas is a city in the Malwa region of the Indian state of Madhya Pradesh. The municipality was formerly the seat of two 15-Gun Salute state princely states during the British Raj, Dewas Junior state and Dewas Senior state, ruled by the Pua ...
(Central India). RBI established the
National Payments Corporation of India
The National Payments Corporation of India is an umbrella organization for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of ...
as one of its specialised division to regulate the payment and settlement systems in India.
Deposit Insurance and Credit Guarantee Corporation
Deposit Insurance and Credit Guarantee Corporation (DICGC) is a specialised division of Reserve Bank of India which is under the jurisdiction of Ministry of Finance, Government of India. It was established on 15 July 1978 under the Deposit In ...
was established by RBI as one of its specialised division for the purpose of providing insurance of deposits and guaranteeing of
credit facilities to all Indian banks.
Until the
Monetary Policy Committee Monetary Policy Committee (MPC) may refer to:
* Monetary Policy Committee (India) of the Reserve Bank of India
* Monetary Policy Committee (United Kingdom)
The Monetary Policy Committee (MPC) is a committee of the Bank of England, which meets ...
was established in 2016, it also had full control over
monetary policy
Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often a ...
in the country.
It commenced its operations on 1 April 1935 in accordance with the
Reserve Bank of India Act, 1934
Reserve Bank of India Act, 1934 is the legislative act under which the Reserve Bank of India was formed. This act along with the Companies Act, which was amended in 1936, were meant to provide a framework for the supervision of banking firms in ...
. The original share capital was divided into shares of 100 each fully paid.
Following India's independence on 15 August 1947, the RBI was nationalised on 1 January 1949.
The overall direction of the RBI lies with the 21-member central board of directors, composed of: the
governor
A governor is an administrative leader and head of a polity or political region, ranking under the head of state and in some cases, such as governors-general, as the head of state's official representative. Depending on the type of political ...
; four deputy governors; two
finance ministry
A finance minister is an executive or cabinet position in charge of one or more of government finances, economic policy and financial regulation.
A finance minister's portfolio has a large variety of names around the world, such as "treasury", " ...
representatives (usually the
Economic Affairs Secretary and the Financial Services Secretary); ten government-nominated directors; and four directors who represent local boards for
Mumbai
Mumbai (, ; also known as Bombay — the official name until 1995) is the capital city of the Indian state of Maharashtra and the ''de facto'' financial centre of India. According to the United Nations, as of 2018, Mumbai is the second- ...
,
Kolkata
Kolkata (, or , ; also known as Calcutta , the official name until 2001) is the capital of the Indian state of West Bengal, on the eastern bank of the Hooghly River west of the border with Bangladesh. It is the primary business, comme ...
,
Chennai
Chennai (, ), formerly known as Madras ( the official name until 1996), is the capital city of Tamil Nadu, the southernmost Indian state. The largest city of the state in area and population, Chennai is located on the Coromandel Coast of th ...
, and
Delhi
Delhi, officially the National Capital Territory (NCT) of Delhi, is a city and a union territory of India containing New Delhi, the capital of India. Straddling the Yamuna river, primarily its western or right bank, Delhi shares borders w ...
. Each of these local boards consists of five members who represent regional interests and the interests of co-operative and indigenous banks.
It is a member bank of the
Asian Clearing Union
The Asian Clearing Union (ACU) was established on December 9, 1974, at the initiative of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). The primary objective of ACU, at the time of its establishment, was to se ...
. The bank is also active in promoting financial inclusion policy and is a leading member of the
Alliance for Financial Inclusion
The Alliance for Financial Inclusion, or AFI, is a policy leadership alliance owned and led by member central banks and financial regulatory institutions with the common objective of advancing financial inclusion at the country, regional and inte ...
(AFI). The bank is often referred to by the name 'Mint Street'.
On 12 November 2021, the
Prime Minister of India
The prime minister of India (IAST: ) is the head of government of the Republic of India. Executive authority is vested in the prime minister and their chosen Council of Ministers, despite the president of India being the nominal head of the ...
,
Narendra Modi
Narendra Damodardas Modi (; born 17 September 1950) is an Indian politician serving as the 14th and current Prime Minister of India since 2014. Modi was the Chief Minister of Gujarat from 2001 to 2014 and is the Member of Parliament from ...
, launched two new schemes which aim at expanding investments and ensuring more security for investors. The two new schemes include the RBI Retail Direct Scheme and the Reserve Bank Integrated Ombudsman Scheme. The RBI Retail Direct Scheme is targeted at retail investors to invest easily in government securities. According to RBI, the scheme will allow retail investors to open and maintain their government securities account free of cost. The RBI Integrated Ombudsman Scheme aims to further improve the grievance redress mechanism for resolving customer complaints against entities regulated by the central bank. The RBI makes it mandatory for all the banks in India to have a safe box in their own respect strong room. However, exception is given to the Regional Banks and the SBI branches located in the rural areas but a strong room is compulsory.
Preamble
The preamble of the Reserve Bank of India describes the basic functions of the reserve bank as:
History
![Reserve Bank of India 2010 stamp](https://upload.wikimedia.org/wikipedia/commons/2/26/Reserve_Bank_of_India_2010_stamp.jpg)
The Reserve Bank of India was established following the Reserve Bank of India Act of 1934. Though privately owned initially, it was nationalised in 1949 and since then fully owned by the
Ministry of Finance A ministry of finance is a part of the government in most countries that is responsible for matters related to the finance.
Lists of current ministries of finance
Named "Ministry"
* Ministry of Finance (Afghanistan)
* Ministry of Finance and Eco ...
,
Government of India
The Government of India (ISO: ; often abbreviated as GoI), known as the Union Government or Central Government but often simply as the Centre, is the national government of the Republic of India, a federal democracy located in South Asia, c ...
(GoI).
In 1926, the Hilton Young Commission recommended the setting up of the Reserve Bank of India based on recommendations and guidelines presented by Dr. B R Ambedkar to the Hilton Young commission, based on his book - 'The Problem Of The Rupee: Its Origin And Its Solution'. RBI was formed.
At the time of establishment, the authorized capital of the Reserve Bank of India was ₹50 million. The government's share in this was only ₹2-2.2 million.
1935–1949
![IND-19a-Reserve Bank of India-10 Rupees (1937)](https://upload.wikimedia.org/wikipedia/commons/4/4e/IND-19a-Reserve_Bank_of_India-10_Rupees_%281937%29.jpg)
The Reserve Bank of India was founded on 1 April 1935 to respond to economic troubles after the
First World War
World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, the United States, and the Ottoman Empire, with fightin ...
. The bank was set up based on the recommendations of the 1926 Royal Commission on Indian Currency and Finance, also known as the
Hilton Young Commission using recommendations and guidelines received from Dr. B R Ambedkar based on his book, 'The Problem Of The Rupee: Its Origin And Its Solution'.
Eventually, the Central Legislative Assembly passed these guidelines as the RBI Act 1934. The original choice for the seal of RBI was the East India Company
Double Mohur, with the sketch of the Lion and Palm Tree. However, it was decided to replace the lion with the tiger, the national animal of India. The Preamble of the RBI describes its basic functions to regulate the issue of banknotes, keep reserves to secure monetary stability in India, and generally to operate the currency and credit system in the best interests of the country. The Central Office of the RBI was established in Calcutta (now Kolkata) but was moved to Bombay (now Mumbai) in 1937. The RBI also acted as Burma's (now Myanmar) central bank until April 1947 (except during the years of Japanese occupation (1942–45)), even though Burma seceded from the Indian Union in 1937. After the
Partition of India
The Partition of British India in 1947 was the Partition (politics), change of political borders and the division of other assets that accompanied the dissolution of the British Raj in South Asia and the creation of two independent dominions: ...
in August 1947, the bank served as the central bank for
Pakistan
Pakistan ( ur, ), officially the Islamic Republic of Pakistan ( ur, , label=none), is a country in South Asia. It is the world's List of countries and dependencies by population, fifth-most populous country, with a population of almost 24 ...
until June 1948 when the
State Bank of Pakistan
The State Bank of Pakistan (SBP) ( ur, ) is the Central Bank of Pakistan. Its Constitution, as originally laid down in the State Bank of Pakistan Order 1948, remained basically unchanged until 1 January 1974, when the bank was Nationalized and ...
commenced operations. Though set up as a shareholders' bank, the RBI has been fully owned by the
Government of India
The Government of India (ISO: ; often abbreviated as GoI), known as the Union Government or Central Government but often simply as the Centre, is the national government of the Republic of India, a federal democracy located in South Asia, c ...
since its nationalisation in 1949. RBI has a monopoly of note issue.
1950–1960
In the 1950s, the Indian government, under its first Prime Minister Jawaharlal Nehru, developed a centrally planned economic policy that focused on the agricultural sector. The administration nationalised commercial banks and established, based on the ''Banking Companies Act, 1949'' (later called the Banking Regulation Act), a central bank regulation as part of the RBI. Furthermore, the central bank was ordered to support economic plan with loans.
1961–1968
As a result of bank crashes, the RBI was requested to establish and monitor a deposit insurance system. Meant to restore the trust in the national bank system, it was initialised on 7 December 1961. The Indian government founded funds to promote the economy and used the slogan "Developing Banking". The government of India restructured the national bank market and nationalised a lot of institutes. As a result, the RBI had to play the central part in controlling and supporting this public banking sector.
1969–1984
In 1969, the
Indira Gandhi
Indira Priyadarshini Gandhi (; Given name, ''née'' Nehru; 19 November 1917 – 31 October 1984) was an Indian politician and a central figure of the Indian National Congress. She was elected as third prime minister of India in 1966 ...
-headed government nationalised 14 major commercial banks. Upon Indira Gandhi's return to power in 1980, a further six banks were nationalised.
The regulation of the economy and especially the financial sector was reinforced by the Government of India in the 1970s and 1980s.
The central bank became the central player and increased its policies a lot for various tasks like interests, reserve ratio and visible deposits.
These measures aimed at better economic development and had a huge effect on the company policy of the institutes. The banks lend money in selected sectors, like agricultural business and small trade companies.
The Banking Commission was established on Wednesday, 29 January 1969, to analyse banking costs, effects of legislations and banking procedures, including non-banking financial intermediaries and indigenous banking on
Government of India
The Government of India (ISO: ; often abbreviated as GoI), known as the Union Government or Central Government but often simply as the Centre, is the national government of the Republic of India, a federal democracy located in South Asia, c ...
economy; with R.G. Saraiya as the chairman.
The branch was forced to establish two new offices in the country for every newly established office in a town. The
oil crises in 1973 resulted in increasing
inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
, and the RBI restricted monetary policy to reduce the effects.
1985–1990
A lot of committees analysed the Indian economy between 1985 and 1989. Their results had an effect on the RBI. The ''
Board for Industrial and Financial Reconstruction
The Board for Industrial and Financial Reconstruction (BIFR) was a development finance institution under the ownership of Ministry of Finance, Government of India, part of the Department of Financial Services of the Ministry of Finance. Set up ...
'', the ''Indira Gandhi Institute of Development Research'' and the ''Security & Exchange Board of India'' investigated the national economy as a whole, and the security and exchange board proposed better methods for more effective markets and the protection of investor interests. The Indian financial market was a leading example for so-called "financial repression" (Mckinnon and Shaw).
The ''Discount and Finance House of India'' began its operations in the monetary market in April 1988; the ''National Housing Bank'', founded in July 1988, was forced to invest in the property market and a new financial law improved the versatility of direct deposit by more security measures and liberalisation.
1991–1999
The national economy contracted in July 1991 as the Indian rupee was devalued. The currency lost 18% of its value relative to the
US dollar
The United States dollar (symbol: $; code: USD; also abbreviated US$ or U.S. Dollar, to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the official ...
, and the ''
Narsimham Committee'' advised restructuring the financial sector by a temporal reduced reserve ratio as well as the statutory liquidity ratio. New guidelines were published in 1993 to establish a private banking sector. This turning point was meant to reinforce the market and was often called
neo-liberal
Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent fa ...
.
The central bank deregulated bank interests and some sectors of the financial market like the trust and property markets. This first phase was a success and the central government forced a diversity liberalisation to diversify owner structures in 1998.
The
National Stock Exchange of India
National Stock Exchange of India Limited (NSE) is the leading stock exchange under the ownership of various group of domestic and global financial institutions, public and privately owned entities and individuals. It is located in Mumbai, Mah ...
took the trade on in June 1994 and the RBI allowed nationalised banks in July to interact with the
capital market
A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers t ...
to reinforce their capital base. The central bank founded a subsidiary company—the
Bharatiya Reserve Bank Note Mudran Private Limited
Bharatiya Reserve Bank Note Mudran (BRBNM) is a specialised division of Reserve Bank of India which is under the ownership of Ministry of Finance of the Government of India. It mints Indian bank notes. It was established in 1995 to address the ...
—on 3 February 1995 to produce banknotes.
2000 - 2009
The ''
Foreign Exchange Management Act
The Foreign Exchange Management Act, 1999 (FEMA), is an Act of the Parliament of India "to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly d ...
, 1999'' came into force in June 2000. It should improve the item in 2004–2005 (
National Electronic Fund Transfer
National Electronic Funds Transfer (NEFT) is an electronic funds transfer system maintained by the Reserve Bank of India (RBI). Started in November 2005, the setup was established and maintained by Institute for Development and Research in Bankin ...
). The ''Security Printing & Minting Corporation of India Ltd.'', a merger of nine institutions, was founded in 2006 and produces banknotes and coins.
The national economy's growth rate came down to 5.8% in the last quarter of 2008–2009 and the central bank promotes the economic development.
Since 2010
In 2016, the
Government of India
The Government of India (ISO: ; often abbreviated as GoI), known as the Union Government or Central Government but often simply as the Centre, is the national government of the Republic of India, a federal democracy located in South Asia, c ...
amended the RBI Act to establish the
Monetary Policy Committee Monetary Policy Committee (MPC) may refer to:
* Monetary Policy Committee (India) of the Reserve Bank of India
* Monetary Policy Committee (United Kingdom)
The Monetary Policy Committee (MPC) is a committee of the Bank of England, which meets ...
(MPC) to set. This limited the role of the RBI in setting interest rates, as the MPC membership is evenly divided between members of the RBI (including the RBI governor) and independent members appointed by the government. However, in the event of a tie, the vote of the RBI governor is decisive.
In April 2018, the RBI announced that "entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling
virtual currencies," including
Bitcoin
Bitcoin ( abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
. While the RBI later clarified that it "has not prohibited" virtual currencies, a three-judge panel of the
Supreme Court of India
The Supreme Court of India ( IAST: ) is the supreme judicial authority of India and is the highest court of the Republic of India under the constitution. It is the most senior constitutional court, has the final decision in all legal matters ...
issued a ruling on 4 March 2020 that the RBI had failed to show "at least some semblance of any damage suffered by its regulated entities" through the handling of virtual currencies to justify its decision. The court challenge was filed by the
Internet and Mobile Association of India
Internet and Mobile Association of India (IAMAI) is a not-for-profit industry body representing the interests of online and mobile value added services industry. It is registered under The Societies Registration Act, 1860.
History
The need fo ...
, whose members include some cryptocurrency exchanges whose businesses suffered following the RBI's 2018 order.
Structure
![MonetaryMuseumRBIPlaque](https://upload.wikimedia.org/wikipedia/commons/c/ca/MonetaryMuseumRBIPlaque.JPG)
The central board of directors is the main committee of the central bank. The Government of India appoints the directors for a four-year term. The board consists of a governor, and not more than four deputy governors; four directors to represent the regional boards; two – usually the
Economic Affairs Secretary and the
Financial Services Secretary
The position of City Minister is a United Kingdom Government mid-level ministerial post in HM Treasury. The minister is responsible for the British financial services sector which is commonly known as ' the City'. The post is normally held in co ...
– from the
Ministry of Finance A ministry of finance is a part of the government in most countries that is responsible for matters related to the finance.
Lists of current ministries of finance
Named "Ministry"
* Ministry of Finance (Afghanistan)
* Ministry of Finance and Eco ...
and ten other directors from various fields. The Reserve Bank – under
Raghuram Rajan's governorship – wanted to create a post of a
chief operating officer
A chief operating officer or chief operations officer, also called a COO, is one of the highest-ranking executive positions in an organization, composing part of the "C-suite". The COO is usually the second-in-command at the firm, especially if t ...
(COO), in the rank of deputy governor and wanted to re-allocate work between the five of them (four deputy governor and COO).
Two of the four deputy governors are traditionally from RBI ranks and are selected from the bank's executive directors. One is nominated from among the chairpersons of public sector banks and the other is an economist. An
Indian Administrative Service
The Indian Administrative Service (IAS) is the administrative arm of the All India Services of Government of India. Considered the premier civil service of India, the IAS is one of the three arms of the All India Services along with the Indian ...
officer can also be appointed as deputy governor of RBI and later as the governor of RBI as with the case of
Y. Venugopal Reddy
Yaga Venugopal Reddy (born 17 August 1941) is an Indian economist and a retired Indian Administrative Service (IAS) officer of the 1964 batch belonging to Andhra Pradesh cadre. Reddy served as governor of the Reserve Bank of India (RBI), India's ...
and
Duvvuri Subbarao
Duvvuri Subbarao (born 11 August 1949) is an Indian economist, Central Banker, and retired IAS officer. He was the 22nd Governor of Reserve Bank of India, served under Prime Minister Dr. Manmohan Singh. After stepping down from RBI, he was a Dist ...
. Other persons forming part of the central board of directors of the RBI are
Nachiket Mor
Nachiket Mor is an Indian banker. He is currently National Director for Bill and Melinda Gates Foundation. He is known for his inventions of financial devices to deliver banking service to villages and contribution in trying to solve India's fi ...
,
Y. C. Deveshwar,
Prof Damodar Acharya, Ajay Tyagi and Anjuly Duggal.
Executive Directors (ED) consist of M. Rajeshwar Rao, Lily Vadera, Rabi N. Mishra, Smt. Nanda S. Dave, Anil K. Sharma, S. C. Murmu, T. Rabi Sankar, Janak Raj, P Vijayakumar, Indrani Banerjee, O.P. Mall and Sudha Balakrishnan
(Chief Financial Officer).
Sudha Balakrishnan, a former vice-president at
National Securities Depository Limited
National Securities Depository Limited (NSDL) is an Indian central securities depository, based in Mumbai. It was established in August 1996 as the first electronic securities depository in India with national coverage. It was established base ...
, assumed charge as the first chief financial officer (CFO) of the Reserve Bank on 15 May 2018; she was given the rank of an executive director.
The bank's current governor is
Shaktikanta Das
Shaktikanta Das (born 26 February 1957) is serving as the current & 25th governor of the Reserve Bank of India (RBI). He was earlier a member of the FifteenthFinance Commission and India's Sherpa to the G20. Das is a retired 1980batch Indian Ad ...
.
There are currently four deputy governors
Mahesh Kumar Jain, M. Rajeshwar Rao,
Michael Patra
Michael Debabrata Patra is an Indian economist and central banker. A career Reserve Bank of India officer, he is currently serving as one its fourdeputy governors.
Education
Born in Cuttack, Odisha, into an Odia Christian family, Michael D ...
and T. Rabi Shankar.
Branches and support bodies
![View of RBI Chennai from suburban train](https://upload.wikimedia.org/wikipedia/commons/2/27/View_of_RBI_Chennai_from_suburban_train.jpg)
The RBI has four regional representations: North in New Delhi, South in Chennai, East in Kolkata and West in Mumbai. The representations are formed by five members, appointed for four years by the central government and with the advice of the central board of directors serve as a forum for regional banks and to deal with delegated tasks from the Central Board.
RBI has 31 branches in India. Mostly all are in Capital cities, exceptions are the
Nagpur
Nagpur (pronunciation: Help:IPA/Marathi, aːɡpuːɾ is the third largest city and the winter capital of the Indian state of Maharashtra. It is the 13th largest city in India by population and according to an Oxford's Economics report, Nag ...
Reserve Bank branch which is actually a Second capital of Maharashtra and the
Ahmedabad
Ahmedabad ( ; Gujarati: Amdavad ) is the most populous city in the Indian state of Gujarat. It is the administrative headquarters of the Ahmedabad district and the seat of the Gujarat High Court. Ahmedabad's population of 5,570,585 (per t ...
Reserve Bank branch. Nagpur Reserve Bank was established in 1956, while the Ahmedabad branch was established in 1950.
It has two training colleges for its officers, viz. Reserve Bank Staff College,
Chennai
Chennai (, ), formerly known as Madras ( the official name until 1996), is the capital city of Tamil Nadu, the southernmost Indian state. The largest city of the state in area and population, Chennai is located on the Coromandel Coast of th ...
and College of Agricultural Banking,
Pune
Pune (; ; also known as Poona, (List of renamed Indian cities and states#Maharashtra, the official name from 1818 until 1978) is one of the most important industrial and educational hubs of India, with an estimated population of 7.4 million ...
. There are three autonomous institutions run by RBI namely
National Institute of Bank Management
The National Institute of Bank ManagementNIBM is an autonomous institute located in Pune, India. It is an autonomous, apex institution for research, training, education and consultancy in bank management.
About the institute
NIBM was establis ...
(NIBM),
Indira Gandhi Institute of Development Research
Indira Gandhi Institute of Development Research (IGIDR) is an advanced research and educational institution in Mumbai, India. The institute's mission is to carry out research on developmental issues from a multi-disciplinary point of view. This ...
(IGIDR),
Institute for Development and Research in Banking Technology
The Institute for Development & Research in Banking Technology (IDRBT) is an engineering training institution exclusively focused on banking technology. Established by the Reserve Bank of India (RBI) in 1996, the institution works at the inte ...
(IDRBT). There are also four zonal training centres at Mumbai, Chennai, Kolkata, and New Delhi.
The Board of Financial Supervision (BFS), formed in November 1994, serves as a CCBD committee to control the financial institutions. It has four members, appointed for two years, and takes measures to strength the role of statutory auditors in the financial sector, external monitoring, and internal controlling systems. The
Tarapore committee was set up 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 Capital account convertibility is a feature of a nation's monetary policy, financial regime that centers on the ability to conduct transactions of local financial assets into foreign financial assets freely or at market determined exchange rates. I ...
. The five-member committee recommended a three-year time frame for complete convertibility by 1999–2000.
On 8 December 2017, Surekha Marandi, executive director (ED) of Reserve Bank of India, said RBI will open an office in the north-eastern state of Arunachal Pradesh.
Subsidiaries
Bharatiya Reserve Bank Note Mudran
BRBNM was established by RBI on 3 February 1995 for the purpose to enable RBI to bridge the gap between maintain, demand and supply of
Indian rupee notes in the country.
Deposit Insurance and Credit Guarantee Corporation
Deposit Insurance and Credit Guarantee Corporation
Deposit Insurance and Credit Guarantee Corporation (DICGC) is a specialised division of Reserve Bank of India which is under the jurisdiction of Ministry of Finance, Government of India. It was established on 15 July 1978 under the Deposit In ...
was established by RBI for the purpose of providing insurance of deposits and guaranteeing of credit facilities to all
Indian banks.
National Payments Corporation of India
National Payments Corporation of India
The National Payments Corporation of India is an umbrella organization for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of ...
was established by RBI in Dec 2008 for the purpose of
management
Management (or managing) is the administration of an organization, whether it is a business, a nonprofit organization, or a government body. It is the art and science of managing resources of the business.
Management includes the activities o ...
of the
payment and settlement systems in
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
.
Reserve Bank Information Technology
It has been set up by RBI to serve its
Information Technology
Information technology (IT) is the use of computers to create, process, store, retrieve, and exchange all kinds of data . and information. IT forms part of information and communications technology (ICT). An information technology system (I ...
and
cybersecurity
Computer security, cybersecurity (cyber security), or information technology security (IT security) is the protection of computer systems and networks from attack by malicious actors that may result in unauthorized information disclosure, the ...
needs and to improve the cyber resilience of the
Indian banking industry.
Indian Financial Technology and Allied Services
/h2>
It was established by RBI, mandated to design, deploy and support IT-related services to all Banks and Financial Institutions in the country and also to the Reserve Bank of India. It manages and operates the Financial messaging platform (SFMS) that comprises Real-Time Gross Settlement and National Electronic Funds Transfer. INFINET is also managed by IFTAS. The IFTAS has taken over th
Indian FInancial NETwork (INFINET) Structured Financial Messaging System (SFMS) and the Indian Banking Community Cloud (IBCC) from the IDRBT, effective 1 April 2016.
Reserve Bank Innovation Hub
Shaktikanta Das
Shaktikanta Das (born 26 February 1957) is serving as the current & 25th governor of the Reserve Bank of India (RBI). He was earlier a member of the FifteenthFinance Commission and India's Sherpa to the G20. Das is a retired 1980batch Indian Ad ...
inaugurated the Reserve Bank Innovation Hub (RBIH) on 24 March 2022 in Bengaluru as
Section-8 company under
Companies Act, 2013
The Companies Act 2013 is an Act of the Parliament of India on Indian company law which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company. The 2013 Act is divided into 29 chapters containin ...
, with an initial investment of ₹100 crore to encourage and nurture financial innovation in a sustainable manner through an institutional set-up. RBIH meant to create an ecosystem that focuses on promoting access to financial services and products for the low-income groups in India. It will also help bring world class innovation to financial sector. RBIH is to help in convergence among various stakeholders from
BFSI
Banking, financial services and insurance (BFSI) is the industry's umbrella term for companies that provide a range of such financial products or services. This includes universal banks that provide a range of financial services or companies that ...
sector, Start-up ecosystem, Regulators and Academia in the financial innovation space. RBIH is working on the blueprint of
Digital Rupee
The Digital Rupee (e₹) or eINR or E-Rupee is a tokenised digital version of the Indian Rupee, to be issued by the Reserve Bank of India (RBI) as a central bank digital currency (CBDC). The Digital Rupee was proposed in January 2017 and will b ...
.
Functions
![General Post Office and Reserve Bank of India, Kolkata, India](https://upload.wikimedia.org/wikipedia/commons/f/f6/General_Post_Office_and_Reserve_Bank_of_India%2C_Kolkata%2C_India.jpg)
The central bank of any country executes many functions such as overseeing monetary policy, issuing currency, managing foreign exchange, working as a bank for government and as a banker of scheduled commercial banks. It also works for overall economic growth of the country. The preamble of the Reserve Bank of India describes its main functions 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."''
Financial supervision
The primary objective of RBI is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions, and non-banking finance companies.
The board is constituted by co-opting four directors from the Central Board as members for a term of two years and is chaired by the governor. The deputy governors of the reserve bank are ex-officio members. One deputy governor, usually the deputy governor in charge of banking regulation and supervision, is nominated as the vice-chairman of the board. The board is required to meet normally once every month. It considers inspection reports and other supervisory issues placed before it by the supervisory departments.
BFS through the Audit Sub-Committee also aims at upgrading the quality of the statutory audit and internal audit functions in banks and financial institutions. The audit sub-committee includes deputy governor as the chairman and two directors of the Central Board as members. The BFS oversees the functioning of the Department of Banking Supervision (DBS), the Department of Non-Banking Supervision (DNBS) and the Financial Institutions Division (FID) and gives directions on the regulatory and supervisory issues.
Regulator and supervisor of the financial system
The institution is also the regulator and supervisor of the financial system and prescribes broad parameters of banking operations within which the country's banking and financial system functions. Its objectives are to 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 addressing of complaints by bank customers. The RBI controls the monetary supply, monitors economic indicators like the
gross domestic product
Gross domestic product (GDP) is a money, monetary Measurement in economics, measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjec ...
and has to decide the design of the rupee banknotes as well as coins.
[RBI, Frequently Asked Questions, Currency Matters](_blank)
(RBI)
Regulator and supervisor of the payment and settlement systems
Payment and settlement systems play an important role in improving overall economic efficiency. The Payment and Settlement Systems Act of 2007 (PSS Act) gives the Reserve Bank oversight authority, including regulation and supervision, for the payment and settlement systems in the country. In this role, the RBI focuses on the development and functioning of safe, secure and efficient payment and settlement mechanisms. Two payment systems
National Electronic Fund Transfer
National Electronic Funds Transfer (NEFT) is an electronic funds transfer system maintained by the Reserve Bank of India (RBI). Started in November 2005, the setup was established and maintained by Institute for Development and Research in Bankin ...
(NEFT) and Real-Time Gross Settlement (
RTGS) allow individuals, companies and firms to transfer funds from one bank to another. These facilities can only be used for transferring money within the country.
From 16 December 2019, one can transfer money online using the National Electronic Funds Transfer (NEFT) route 24x7, i.e., any time of the day and any day of the week. The Reserve Bank of India stated earlier in December 2019 that bank customers will be able to transfer funds through NEFT around the clock on all days including weekends and holidays from 16 December. In RTGS, transactions are processed continuously 24x7.
Banker and debt manager to government
Just as individuals need a bank to carry out their financial transactions effectively and efficiently, governments also need a bank to carry out their financial transactions. The RBI serves this purpose for the Government of India (GoI). As a banker to the Government of India, the RBI maintains its accounts, receive payments into and make payments out of these accounts. The RBI also helps the GoI to raise money from the public via issuing bonds and government-approved securities. In Sep 2019, a decision at RBI directors meet was taken to change the RBI financial accounting year to March–April to align itself with the central government calendar instead of the current June–July year.
RBI issue taxable bonds for investments. From 1 July 2020, RBI is offering Floating Rate Savings Bonds, 2020 (Taxable) – FRSB 2020 (T). The interest on the bonds is payable semi-annually on 1 Jan and 1 July every year. The coupon on 1 January 2021 shall be paid at 7.15%. The Interest rate for next half-year will be reset every six months, the first reset being on 1 January 2021. There is no option to pay interest on cumulative basis.
Managing foreign exchange
The central bank manages to reach different goals of the ''
Foreign Exchange Management Act
The Foreign Exchange Management Act, 1999 (FEMA), is an Act of the Parliament of India "to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly d ...
, 1999''. Their objective is to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
With the increasing integration of the Indian economy with the global economy arising from greater trade and capital flows, the
foreign exchange market
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspec ...
has evolved as a key segment of the Indian financial market and the RBI has an important role to play in regulating and managing this segment. The RBI manages forex and gold reserves of the nation.
On a given day, the foreign exchange rate reflects the demand for and supply of foreign exchange arising from trade and capital transactions. The RBI's Financial Markets Department (FMD) participates in the foreign exchange market by undertaking sales/purchases of foreign currency to ease volatility in periods of excess demand for/supply of foreign currency.
Issue of currency
Other than the Government of India, the Reserve Bank of India is the sole body authorised to issue banknotes in India.
The bank also destroys banknotes when they are not fit for circulation. All the money issued by the central bank is its monetary liability, i.e., the central bank is obliged to back the currency with assets of equal value, to enhance public confidence in paper currency. The objectives are to issue banknotes and give the public adequate supply of the same, to maintain the currency and credit system of the country to utilise it in its best advantage, and to maintain the reserves.
The 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.
For the printing of notes, RBI uses four facilities:
* The
Security Printing and Minting Corporation of India Limited
The Security Printing & Minting Corporation of India Ltd. (SPMCIL) is a company under the Department of Economic Affairs, a department under Ministry of Finance. It is responsible for conducting printing and minting activities of the Government ...
(SPMCIL), a wholly owned company of the Government of India, has printing presses at
Nashik
Nashik (, Marathi: aːʃik, also called as Nasik ) is a city in the northern region of the Indian state of Maharashtra. Situated on the banks of river Godavari, Nashik is the third largest city in Maharashtra, after Mumbai and Pune. Nashik ...
, Maharashtra and
Dewas
Dewas is a city in the Malwa region of the Indian state of Madhya Pradesh. The municipality was formerly the seat of two 15-Gun Salute state princely states during the British Raj, Dewas Junior state and Dewas Senior state, ruled by the Pua ...
, Madhya Pradesh.
* The
Bharatiya Reserve Bank Note Mudran Private Limited
Bharatiya Reserve Bank Note Mudran (BRBNM) is a specialised division of Reserve Bank of India which is under the ownership of Ministry of Finance of the Government of India. It mints Indian bank notes. It was established in 1995 to address the ...
(BRBNMPL), owned by the RBI, has printing facilities in
Mysore
Mysore (), officially Mysuru (), is a city in the southern part of the state of Karnataka, India. Mysore city is geographically located between 12° 18′ 26″ north latitude and 76° 38′ 59″ east longitude. It is located at an altitude of ...
, Karnataka and
Salboni
Salboni (also written as Salbani) is a village in the Salboni CD block, in the Medinipur Sadar subdivision of the Paschim Medinipur district in the Indian state of West Bengal.
Salboni is the location of one of the Reserve Bank of India curre ...
, West Bengal.
For the minting of coins, SPMCIL has four mints at
Mumbai
Mumbai (, ; also known as Bombay — the official name until 1995) is the capital city of the Indian state of Maharashtra and the ''de facto'' financial centre of India. According to the United Nations, as of 2018, Mumbai is the second- ...
,
Noida
Noida, short for New Okhla Industrial Development Authority, is a planned city located in Gautam Buddha Nagar district of the Indian state of Uttar Pradesh. Noida is a satellite city of Delhi and is a part of the National Capital Region (NCR) o ...
,
Kolkata
Kolkata (, or , ; also known as Calcutta , the official name until 2001) is the capital of the Indian state of West Bengal, on the eastern bank of the Hooghly River west of the border with Bangladesh. It is the primary business, comme ...
and
Hyderabad
Hyderabad ( ; , ) is the capital and largest city of the Indian state of Telangana and the ''de jure'' capital of Andhra Pradesh. It occupies on the Deccan Plateau along the banks of the Musi River (India), Musi River, in the northern part ...
for coin production.
Whilst coins are minted by, and
1 notes are issued by the Government of India (GoI), the RBI works as an agent of GoI for the distribution and handling of coins. RBI also works to prevent counterfeiting of currency by regularly upgrading security features of currency.
The RBI is authorised to issue notes with face values of up to 10,000 and coins up to 1,000 rupees.
New
500 500 may refer to:
* 500 (number)
* 500 BC
* AD 500
Buildings and places
* 500 Boylston Street of Boston
* 500 Brickell in Miami
* 500 Capitol Mall in Sacramento
* 500 Fifth Avenue
* 500 Renaissance Center, one of seven buildings in the GM Renai ...
and
2,000
2000 (two thousand) is a natural number following 1999 and preceding 2001.
It is:
:*the highest number expressible using only two unmodified characters in Roman numerals (MM)
:*an Achilles number
:*smallest four digit eban number
Selected ...
notes were issued on 8 November 2016. The old series of
1,000
1000 or one thousand is the natural number following 999 and preceding 1001. In most English-speaking countries, it can be written with or without a comma or sometimes a period separating the thousands digit: 1,000.
A group of one thousand thi ...
and 500 notes were banned on 8 November 2016, and are no longer in use.
Earlier 1,000 notes have been discarded by the RBI.
Bankers' bank
![Nagpur Reserve Bank](https://upload.wikimedia.org/wikipedia/commons/3/39/Nagpur_Reserve_Bank.JPG)
Reserve Bank of India also works as a central bank where commercial banks are account holders and can deposit money. RBI maintains banking accounts of all scheduled banks. Commercial banks create credit. It is the duty of the RBI to control the credit through the CRR, repo rate, and open market operations. As the bankers' bank, the RBI facilitates the clearing of cheques between the commercial banks and helps the inter-bank transfer of funds. It can grant financial accommodation to schedule banks. It acts as the lender of the last resort by providing emergency advances to the banks.
Regulator of the Banking System
RBI has the responsibility of regulating the nation's financial system. As a regulator and supervisor of the Indian banking system it ensures financial stability & public confidence in the banking system. RBI uses methods like On-site inspections, off-site surveillance, scrutiny & periodic meetings to supervise new bank licences, setting capital requirements and regulating interest rates in specific areas. RBI is currently focused on implementing norms.
Detection of fake currency
To curb the
counterfeit money
Counterfeit money is currency produced without the legal sanction of a state or government, usually in a deliberate attempt to imitate that currency and so as to deceive its recipient. Producing or using counterfeit money is a form of fraud or fo ...
problem in India, RBI has launched a website to raise awareness among masses about fake banknotes in the market. www.paisaboltahai.rbi.org.in provides information about identifying fake currency.
On 22 January 2014; RBI gave a press release stating that after 31 March 2014, it will completely withdraw from circulation of all banknotes issued prior to 2005. From 1 April 2014, the public will be required to approach banks for exchanging these notes. Banks will provide exchange facility for these notes until further communication. The reserve bank has also clarified that the notes issued before 2005 will continue to be legal tender. This would mean that banks are required to exchange the notes for their customers as well as for non-customers. After 1 July 2014, to exchange more than 15 pieces of '500 and '1000 notes, non-customers must furnish proof of identity and residence as well as show ''aadhar'' to the bank branch in order to exchange the notes.
This move from the reserve bank is expected to unearth black money held in cash. As the new currency notes have added increased security features, they would help in curbing the menace of fake currency.
Developmental role
The central bank has to perform a wide range of promotional functions to support national objectives and industries.
The RBI faces a lot of inter-sectoral and local inflation-related problems. Some of these problems are results of the dominant part of the public sector.
Key tools in this effort include Priority Sector Lending such as agriculture, micro and small enterprises (MSE), housing and education. RBI work towards strengthening and supporting small local banks and encourage banks to open branches in rural areas to include large section of society in banking net.
Related functions
The RBI is also a banker to the government and performs merchant banking function for the central and the state governments. It also acts as their banker. The
National Housing Bank
National Housing Bank (NHB), is the apex regulatory body for overall regulation and licensing of housing finance companies in India. It is under the jurisdiction of Ministry of Finance , Government of India. It was set up on 9 July 1988 under t ...
(NHB) was established in 1988 to promote private real estate acquisition.
The institution maintains banking accounts of all scheduled banks, too.
RBI on 7 August 2012 said that Indian banking system is resilient enough to face the stress caused by the drought-like situation because of poor monsoon this year.
Custodian to foreign exchange
The Reserve Bank has custody of the country's reserves of international currency, and this enables the Reserve Bank to deal with crisis connected with adverse balance of payments position.
CSD for G-Sec (Government Securities)
Public Debt Office (PDO) acts as CSD (Central Securities Depository) for G-Sec.
MIFOR (Mumbai Interbank Forward Offer Rate)
With LIBOR cessation in 2021, RBI is set to replace MIFOR with a new benchmark. MIFOR has LIBOR as one of the components and used in interest rate swap (IRS) markets.
2016 demonetisation
![2016 Indian currency note demonetisation](https://upload.wikimedia.org/wikipedia/commons/8/8e/2016_Indian_currency_note_demonetisation.jpg)
On 8 November 2016, the
Government of India
The Government of India (ISO: ; often abbreviated as GoI), known as the Union Government or Central Government but often simply as the Centre, is the national government of the Republic of India, a federal democracy located in South Asia, c ...
announced the
demonetisation of all
500 and
1,000 banknotes of the
Mahatma Gandhi Series
The Gandhi Series of banknotes are issued by the Reserve Bank of India (RBI) as the legal tender of Indian rupee. The series is so called because the obverse of the banknotes prominently display the portrait of Mahatma Gandhi. Since its introd ...
despite being warned by the Reserve Bank of India (RBI).
The government claimed that the action would curtail the shadow economy and crack down on the use of illicit and counterfeit cash to fund illegal activity and terrorism.
The Reserve Bank of India laid down a detailed procedure for the exchange of the demonetised banknotes with new 500 and
2,000 banknotes of the
Mahatma Gandhi New Series
The Mahatma Gandhi New Series of banknotes are issued by the Reserve Bank of India
The Reserve Bank of India, chiefly known as RBI, is India's central bank and regulatory body responsible for regulation of the Indian banking system. It ...
and
100 banknotes of the preceding
Mahatma Gandhi Series
The Gandhi Series of banknotes are issued by the Reserve Bank of India (RBI) as the legal tender of Indian rupee. The series is so called because the obverse of the banknotes prominently display the portrait of Mahatma Gandhi. Since its introd ...
. The key points were:
* Citizens had until 30 December 2016 to tender their old banknotes at any office of the RBI or any bank branch and credit the value into their respective bank accounts.
* Cash withdrawals from bank accounts were restricted to per day and per week per account from 10 to 13 November 2016. This limit was increased to per week from 14 November.
* For immediate cash needs, the old banknotes could be exchanged for the new ₹500 and ₹2,000 banknotes as well as ₹100 banknotes over the counter of bank branches by filling up a requisition form along with a valid ID proof. It was announced that this facility would be available until 30 December 2016.
** Initially, the limit was fixed at per person from 8 to 13 November 2016.
** This limit was increased to per person from 14 to 17 November 2016.
** The limit was reduced to per person from 18 November 2016.
** All exchange of banknotes was abruptly stopped from 25 November 2016.
* Initially, all ATMs were dispensing banknotes of only 50 and ₹100 denominations and cash withdrawals from ATMs were restricted to per day.
From 14 November onwards, ATMs were recalibrated to dispense new ₹500 and ₹2,000 notes and to allow a maximum withdrawal of per day, while other ATMs dispensing banknotes of only ₹50 and ₹100 denominations will allow a maximum withdrawal of per day.
However, exceptions were given to petrol,
CNG
Compressed natural gas (CNG) is a fuel gas mainly composed of methane (CH4), compressed to less than 1% of the volume it occupies at standard atmospheric pressure. It is stored and distributed in hard containers at a pressure of , usually in cyl ...
and gas stations, government hospitals,
railway
Rail transport (also known as train transport) is a means of transport that transfers passengers and goods on wheeled vehicles running on rails, which are incorporated in tracks. In contrast to road transport, where the vehicles run on a pre ...
and airline booking counters, state-government recognised dairies and ration stores, and crematoriums to accept the old ₹500 and ₹1,000 banknotes until 11 November 2016, which was later extended to 14 November 2016 and once again to 24 November 2016. International airports were also instructed to facilitate an exchange of notes amounting to a total value of for foreign tourists and outbound passengers.
Under the revised guidelines issued on 17 November 2016, families were allowed to withdraw for wedding expenses from one account provided it was
KYC compliant. The rules were also changed for farmers who are permitted to withdraw per week from their accounts against crop loan.
Cash crunch and demerits
![Queue at Bank to Exchange INR 500 and 1000 Notes - Salt Lake City - Kolkata 2016-11-10 02103](https://upload.wikimedia.org/wikipedia/commons/b/b7/Queue_at_Bank_to_Exchange_INR_500_and_1000_Notes_-_Salt_Lake_City_-_Kolkata_2016-11-10_02103.jpg)
The scarcity of cash due to demonetisation led to chaos, and most people holding old banknotes faced difficulties exchanging them due to endless lines outside banks and ATMs across India, which became a daily routine for millions of people waiting to deposit or exchange the
500 500 may refer to:
* 500 (number)
* 500 BC
* AD 500
Buildings and places
* 500 Boylston Street of Boston
* 500 Brickell in Miami
* 500 Capitol Mall in Sacramento
* 500 Fifth Avenue
* 500 Renaissance Center, one of seven buildings in the GM Renai ...
and
1,000
1000 or one thousand is the natural number following 999 and preceding 1001. In most English-speaking countries, it can be written with or without a comma or sometimes a period separating the thousands digit: 1,000.
A group of one thousand thi ...
banknotes since 9 November.
ATMs were running out of cash after a few hours of being functional, and around half the ATMs in the country were non-functional.
Sporadic violence was reported in
New Delhi
New Delhi (, , ''Naī Dillī'') is the capital of India and a part of the National Capital Territory of Delhi (NCT). New Delhi is the seat of all three branches of the government of India, hosting the Rashtrapati Bhavan, Parliament House ...
, but there were no reports of any grievous injury, people attacked bank premises and ATMs, and a ration shop was looted in
Madhya Pradesh
Madhya Pradesh (, ; meaning 'central province') is a state in central India. Its capital is Bhopal, and the largest city is Indore, with Jabalpur, Ujjain, Gwalior, Sagar, and Rewa being the other major cities. Madhya Pradesh is the seco ...
after the shop owner refused to accept 500 banknotes.
Merits
*It gave the country a ₹5 trillion advantage as there was a huge spike in country's tax base and addition of 100,000 more pan card holders.
*There was a very big spike in digital transaction even small town and cities people adopted paying digitally for goods and services leading to sustained growth of non-cash payments.
Policy rates and reserve ratios
Repo rate
Repo (repurchase) rate also known as the benchmark interest rate is the rate at which the RBI lends money to the commercial banks for a short-term (a maximum of 90 days). When the repo rate increases, borrowing from RBI becomes more expensive. If RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate similarly, if it wants to make it cheaper for banks to borrow money it reduces the repo rate. If the repo rate is increased, banks can't carry out their business at a profit whereas the very opposite happens when the repo rate is cut down. Generally, repo rates are cut down whenever the country needs to progress in banking and economy.
If banks want to borrow money (for short term, usually overnight) from RBI then banks have to charge this interest rate. Banks have to pledge government securities as collateral. This kind of deal happens through a re-purchase agreement. If a bank wants to borrow, it has to provide government securities at least worth 1 billion (could be more because of margin requirement which is 5%–10% of loan amount) and agree to repurchase them at at the end of borrowing period. So the bank has paid as interest. This is the reason it is called repo rate.
The government securities which are provided by banks as collateral can not come from quota (otherwise the SLR will go below 19.5% of and attract penalties).
To curb inflation, the RBI increases repo rate which will make borrowing costs for banks. Banks will pass this increased cost to their customers which make borrowing costly in the whole economy. Fewer people will apply for loans and aggregate demand will be reduced. This will result in inflation coming down. The RBI does the opposite to fight deflation. When the RBI reduces the repo rate, banks are not legally required to reduce their own
base rate
In probability and statistics, the base rate (also known as prior probabilities) is the class of probabilities unconditional on "featural evidence" (likelihoods).
For example, if 1% of the population were medical professionals, and remaining 9 ...
.
The present repo rate is 4.90%.
Reverse repo rate (RRR)
As the name suggest,
reverse repo
A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is a form of short-term borrowing, mainly in government securities. The dealer sells the underlying security to investors and, by agreement between the two par ...
rate is just the opposite of repo rate. Reverse repo rate is the short term borrowing rate in which commercial bank Park their surplus in RBI The reserve bank uses this tool when it feels there is too much money floating in the banking system. An increase in the reverse repo rate means that the banks will get a higher rate of interest from RBI. As a result, banks prefer to lend their money to RBI which is always safe instead of lending it to others (people, companies, etc.) which is always risky.
Repo rate signifies the rate at which liquidity is injected into the banking system by RBI, whereas reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks. Currently, reverse repo rate is 3.35%.
Statutory liquidity ratio (SLR)
Apart from the , banks are required to maintain liquid assets in the form of gold, cash and approved securities. Higher liquidity ratio forces commercial banks to maintain a larger proportion of their resources in liquid form and thus reduces their capacity to grant loans and advances, thus it is an anti-inflationary impact. A higher liquidity ratio diverts the bank funds from loans and advances to investment in government and approved securities.
In well-developed economies, central banks use
open market operation
In macroeconomics, an open market operation (OMO) is an activity by a central bank to give (or take) liquidity in its currency to (or from) a bank or a group of banks. The central bank can either buy or sell government bonds (or other financial as ...
s—buying and selling of eligible securities by the central bank in the money market—to influence the volume of cash reserves with commercial banks and thus influence the volume of loans and advances they can make to the commercial and industrial sectors. In the open money market, government securities are traded at market-related rates of interest. The RBI is resorting increasing to open market operations in recent years. Generally, the RBI uses
#Minimum margins for lending against specific securities.
#A ceiling on the amounts of credit for certain purposes.
#The discriminatory rate of interest charged on certain types of advances.
Direct credit controls in India are of three types:
#Part of the interest rate structure, i.e., on small savings and provident funds, are administratively set.
#Banks are mandatory required to keep 18% of their NDTL (net demand and time liabilities) in the form of liquid assets.
#Banks are required to lend to the priority sectors to the extent of 40% of their advances.
The share of net demand and time liabilities that banks must maintain in safe and liquid assets, such as government securities, cash, and gold. Here it would be pertinent to mention the gold swap of July 2014.
The present SLR is 18.00%.
Bank rate
Bank rate is defined in Section 49 of the RBI Act of 1934 as the 'standard rate at which RBI is prepared to buy or rediscount bills of exchange or other commercial papers eligible for purchase'. When banks want to borrow long term funds from the RBI, it is the interest rate which the RBI charges to them. It is currently set to 4.65%.
The bank rate is not used to control money supply, but penal rates continue to be linked to the bank rate. If a bank fails to meet or requirements then the RBI will impose a penalty of 300
basis point
A basis point (often abbreviated as bp, often pronounced as "bip" or "beep") is one hundredth of 1 percentage point. The related term ''permyriad'' means one hundredth of 1 percent. Changes of interest rates are often stated in basis points. If ...
s above bank rate.
Liquidity adjustment facility (LAF)
Liquidity adjustment facility
Liquidity adjustment facility (LAF) is a monetary policy which allows banks to borrow money through repurchase agreements (REPO).
Description
LAF is used to aid banks in adjusting the day to day mismatches in liquidity. LAF helps banks to quickl ...
was introduced in 2000. LAF is a facility provided by the Reserve Bank of India to scheduled commercial banks to avail of liquidity in case of need or to park excess funds with the RBI on an overnight basis against the collateral of government securities.
RBI accepts applications for a minimum amount of and in multiples of 50 million thereafter.
Cash reserve ratio (CRR)
CRR refers to the ratio of bank's cash reserve balances with RBI with reference to the bank's net demand and time liabilities to ensure the liquidity and solvency of the scheduled banks. The share of net demand and time liabilities that banks must maintain as cash with the RBI. The RBI has set CRR at 4.5%
A 1% change in CRR affects the economy by ₹1.37 trillion.
An increase draw this amount from the economy, while a decrease injects this amount into the economy. So if a bank has of then it has to keep in cash with RBI. RBI pays no interest on CRR.
Let's assume the economy is showing inflationary trends and the RBI wants to control this situation by adjusting and CRR. If the RBI increases SLR to 50% and CRR to 20% then bank will be left only with for operations. Now it will be very difficult for the bank to maintain profitability with such a small amount of capital. The bank will be left with no choice but to raise its interest rate which will make borrowing by its customers more costly. This will in turn reduce the overall demand and hence prices will eventually come down.
Open market operation (OMO)
Open market operation is the activity of buying and selling of government securities in open market to control the supply of money in banking system. When there is excess supply of money, central bank sells government securities thereby sucking out excess liquidity. Similarly, when liquidity is tight, RBI will buy government securities and thereby inject money supply into the economy.
On 23 March 2020, Reserve Bank of India infused ₹1 trillion (
short scale
The long and short scales are two of several naming systems for integer power of 10, powers of ten which use some of the same terms for different magnitudes.
For whole numbers smaller than 1,000,000,000 (109), such as one thousand or one m ...
) through term repo auction, a massive
OMOs (open market operations) purchase of government securities. The Reserve Bank is monitoring the financial market conditions and liquidity situation in the economy as
COVID-19 pandemic in India
The COVID-19 pandemic in India is a part of the worldwide pandemic of coronavirus disease 2019 () caused by severe acute respiratory syndrome coronavirus 2 (). As of , according to Indian government figures, India has the second-highest n ...
fears of a recession.
Marginal standing facility (MSF)
This scheme was introduced in May 2011 and all the scheduled commercial bank can participate in this scheme. Banks can borrow up to 2.5% per cent of their respective net demand and time liabilities. The RBI receives application under this facility for a minimum amount of 10 million and in multiples of 10 million thereafter.
The important difference from repo rate is that bank can pledge government securities from its SLR quota (up to one per cent). So even if SLR goes below 20.5% by pledging SLR quota securities under MSF, the bank will not have to pay any penalty. The marginal standing facility rate currently stands at 4.25%.
Qualitative tools
Margin requirements
Loan-to-value (LTV) is the ratio of loan amount to the actual value of asset purchased.
The RBI regulates this ratio so as to control the amount a bank can lend to its customers. For example, an individual wants to buy a car using borrowed money and the car's value is ₹1 million. If the LTV is set to 70% he can borrow a maximum of ₹700,000.
The RBI can decrease or increase to curb inflation or deflation respectively.
Selective credit control
Under this measure, the RBI can specifically instruct banks not to give loans to traders of certain commodities e.g. sugar, edible oil, etc. This prevents the speculation/hoarding of commodities using money from banks.
Moral suasion
Under this measure, the RBI try to persuade banks through meetings, conferences, media specific things under certain economic trends. For example, when the RBI reduces repo rate, it asks banks to reduce their base rate as well. Another example of this measure is to ask banks to reduce their
non-performing assets.
Limitations of monetary policy
In developing countries like India, monetary policy fails to show immediate or no results because the following factors:
# People do not employ alternative investment options. A large section of society still depends on saving accounts, fixed deposits, Public Provident Fund for investment. Commercial banks have large deposits. RBI is not the main or even prominent money supplier for these banks. So whatever monetary action central bank takes has little or late impact on the economy.
# Many people in rural areas are out of the banking net and whatever the RBI does, has no impact on their financial activities.
# Monsoon uncertainty adversely affects food production and thereby cause food inflation. Monetary policy has no impact on food inflation.
RTGS and NEFT transactions' charges removal
RBI decided to remove charges on RTGS (Real Time Gross Settlement System) and NEFT (
National Electronic Funds Transfer
National Electronic Funds Transfer (NEFT) is an electronic funds transfer system maintained by the Reserve Bank of India (RBI). Started in November 2005, the setup was established and maintained by Institute for Development and Research in Bankin ...
).
Regulation of variable pay of bank management
In November, RBI introduced a set of draft guidelines to regulate the variable pay of CEOs and top management at private banks. The new rules are in line with the Sound Compensation Practices issued by the Financial Stability Board in April 2009. The rules will apply to CEOs, wholetime directors, and material risk takers at private banks, small finance banks and domestic executives of foreign banks. As per the new rules at least 50% of the pay should be based on individual, unit, business and firm wide performance evaluation which will be capped at 300% of the fixed pay. In case of variable pay above 200% then at least 50% of this amount should be via non-cash instruments. Share linked instruments are included as part of variable pay. Guaranteed bonus should not be part of the compensation package except in case of joining bonus. The RBI also has put clauses in place to clawback/malus in case of deteriorating performance. The bank shall identify a representative set of conditions when the recovery clause for clawback /malus can be invoked .
Publications
A report titled "''Trend and Progress of Banking in India''" is published annually, as required by the ''
Banking Regulation Act, 1949
The Banking Regulation Act, 1949 is a legislation in India that regulates all banking firms in India. Passed as the Banking Companies Act 1949, it came into force from 16 March 1949 and changed to Banking Regulation Act 1949 from 1 March 1966. ...
''. The report sums up trends and developments throughout the financial sector. Starting in April 2014, the Reserve Bank of India publishes bi-monthly policy updates.
Committees set up by RBI
KV Kamath Committee
In August 2020, RBI set up a five membered Committee under the chairmanship of
KV Kamath
Kundapur Vaman Kamath is the former chief of the New Development Bank of BRICS countries, previously he has also served as the Chairman of Infosys Limited, the second-largest Indian IT services company, and as the Non-Executive Chairman of ICIC ...
, the former
CEO
A chief executive officer (CEO), also known as a central executive officer (CEO), chief administrator officer (CAO) or just chief executive (CE), is one of a number of corporate executives charged with the management of an organization especially ...
of the
ICICI
ICICI Bank Limited is an Indian Private bank. It is headquartered at Mumbai. It offers a wide range of banking products and financial services for corporate and retail customers through a variety of delivery channels and specialized subsidiari ...
bank in order to make recommendations on the norm for resolution of
COVID-19
Coronavirus disease 2019 (COVID-19) is a contagious disease caused by a virus, the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The first known case was COVID-19 pandemic in Hubei, identified in Wuhan, China, in December ...
related stressed loans. In order to restructure the loans up to ₹150 billion, the expert Committee was tasked with coming up with a sector specific plan for successful resolution of the stressed loans. The parameters were to include aspects related to leverage, liquidity and debt serviceability.
Attempt to caution customers against virtual currencies
In April 2018, RBI had banned banks from supporting crypto transactions after cases of fraud through virtual currencies were reported. However, the Supreme Court had struck down the ban in March 2020. Among the reasons cited was that cryptocurrencies were not illegal though unregulated in India.
Training Academy
*
RBI Staff College
Research Units
*
National Institute of Bank Management
The National Institute of Bank ManagementNIBM is an autonomous institute located in Pune, India. It is an autonomous, apex institution for research, training, education and consultancy in bank management.
About the institute
NIBM was establis ...
*
Institute for Development and Research in Banking Technology
The Institute for Development & Research in Banking Technology (IDRBT) is an engineering training institution exclusively focused on banking technology. Established by the Reserve Bank of India (RBI) in 1996, the institution works at the inte ...
*
Indira Gandhi Institute of Development Research
Indira Gandhi Institute of Development Research (IGIDR) is an advanced research and educational institution in Mumbai, India. The institute's mission is to carry out research on developmental issues from a multi-disciplinary point of view. This ...
All India Financial Institutions separated from Reserve Bank of India
Regulatory Bodies
* ''Export - Import Bank of India''
* ''
National Bank for Agriculture and Rural Development
National Bank for Agriculture and Rural Development (NABARD) is an apex regulatory body for overall regulation of regional rural banks and apex cooperative banks in India. It is under the jurisdiction of Ministry of Finance, Government of India ...
''
* ''
Small Industries Development Bank of India
Small Industries Development Bank of India (SIDBI) is the apex regulatory body for overall licensing and regulation of micro, small and medium enterprise finance companies in India. It is under the jurisdiction of Ministry of Finance , Governm ...
''
* ''
National Housing Bank
National Housing Bank (NHB), is the apex regulatory body for overall regulation and licensing of housing finance companies in India. It is under the jurisdiction of Ministry of Finance , Government of India. It was set up on 9 July 1988 under t ...
''
References
Further reading
*S. L. N. Simha. ''History of the Reserve Bank of India, Volume 1: 1935–1951''. RBI. 1970. .
2005 reprint PDF
*''Reserve Bank of India: Functions and Working''. RBI. 2005
2005 reprint PDF
*G. Balachandran. ''The Reserve Bank of India, 1951–1967''.
Oxford University Press
Oxford University Press (OUP) is the university press of the University of Oxford. It is the largest university press in the world, and its printing history dates back to the 1480s. Having been officially granted the legal right to print books ...
. 1998. .
PDF
*A. Vasudevan et al. ''The Reserve Bank of India, Volume 3: 1967–1981''. RBI. 2005. .
PDF
*Roy, Tirthankar (2023). ''The Reserve Bank of India: Volume 5, 1997–2008''. Vol. 5. Cambridge University Press
*
Cecil Kisch
Sir Cecil Hermann Kisch, KCIE, CB (31 March 1884 – 20 October 1961) was a British civil servant in the India Office who rose to be Deputy Under-Secretary of State for India from 1943 to 1946. In later life, he became an author and historian, an ...
: ''Review "The Monetary Policy of the Reserve Bank of India" by K. N. Raj''. In: ''The Economic Journal''. Vol. 59, No. 235 (Sep. 1949), pp. 436–438.
*Findlay G. Shirras: ''The Reserve Bank of India''. In ''The Economic Journal''. Vol. 44, No. 174 (Jun. 1934), pp. 258–274.
External links
*
FAQ answers and Guidelines on Reserve Bank of India ''India Today'', 8 November 2016
Ministry of Finance, Government of India
{{Authority control
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
Organisations based in Mumbai
Banks established in 1935
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
Financial services companies based in Mumbai
Indian companies established in 1935
Recipients of the Rashtriya Khel Protsahan Puruskar