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Reserve Bank of India

Coordinates: 18°55′58″N 72°50′13″E / 18.93278°N 72.83694°E / 18.93278; 72.83694
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Reserve Bank of India
Logo of RBI
Logo of RBI
The RBI headquarters in Mumbai
The RBI headquarters in Mumbai
HeadquartersMumbai, Maharashtra, India
Coordinates18°55′58″N 72°50′13″E / 18.93278°N 72.83694°E / 18.93278; 72.83694
Established1 April 1935
GovernorDr. D Subbarao
Central bank ofIndia
CurrencyIndian Rupee
INR (ISO 4217)
Reserves$287.37 billion(2009)
Bank rate5.2%
Interest on reserves9.5%
Websitewww.rbi.org.in

The Reserve Bank of India (RBI, Hindi: भारतीय रिज़र्व बैंक) is the central bank of India and controls the monetary policy of the rupee as well as 287.37 billion US-Dollar (2009) currency reserves. The institution was established on 1 April 1935 during the British-Raj in accordance with the provisions of the Reserve Bank of India Act, 1934 [1] and plays an important part in the development strategy of the government.

History

The central bank was founded in 1935 to respond to economic troubles after the first world war.[2] 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 another 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, to keep reserves with a view to securing 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 Reserve Bank was initially established in Kolkata, Bengal, but was permanently moved to Mumbai in 1937. The Reserve Bank has continued to act as the central bank for Myanmar till Japanese occupation of Burma and later upto April 1947, though Burma seceded from Indian Union in 1937. After the partition, the Reserve bank served as the central bank for Pakistan upto June 1948 when the State Bank of Pakistan commenced operations. Though originally set up as a shareholder's bank, the RBI has been fully owned by the Government of India since its nationalization in 1949.[3]

Between 1950 and 1960 the Indian government developed a centrally planned economic policy and focused on the agricultural sector. The administration nationalized commercial banks[4] and established, based on the Banking Companies Act, 1949 (later called Banking Regulation Act) a central bank regulation as part of the RBI. Beside that the central bank was ordered to support the economic plan with loans.[5]

As a result of bank crashes the reserve bank was requested to establish and monitor a deposit insurance system. It should restore the trust in the national bank system and was initialized on 7. December 1961. The Indian government founded funds to promote the economy and used the slogan Developing Banking. The Gandhi administration and their successors restuctured the national bank market and nationalized a lot of institutes.[6] As a result the RBI had to play the central part of control and support of this public banking sector.[7]

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

Retiring directors

On 1 July 2006, in an attempt to enhance the quality of customer service and strengthen the grievance redressal mechanism, the Reserve Bank of India constituted a new department — Customer Service Department (CSD).

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 Functions

Reserve Bank of India regional office, Delhi entrance with the Yakshini sculpture depicting "Prosperity through agriculture"[8].
The RBI Regional Office in Delhi.
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 redressal of complaints by bank customers.
Manager of exchange control
  • Manages the Foreign Exchange Management Act, 1999.
  • Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
Issuer of currency
  • Issues and exchanges or destroys currency and coins not fit for circulation.
  • Objective: the main objective is to give the public adequate supply of currency of good quality and to provide loans to commercial banks to maintain or improve the GDP (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 and industries.[9] The RBI faces a lot of inter-sectoral and local inflation-related problems. Some of this problems are results of the dominant part of the public sector.[10]
Related functions
  • Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. The National Housing Bank (NHB) was established in 1988 to promote private real estate acquisition.[11]
  • 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 worldover, has however, vindicted the Reserve Bank's role in maintaining financial stability in India.

Major liabilities of commercial banks

Figures below are in millions of Indian Rupees. See [1] and [2]

Year Deposits and other Accounts[12] Bills Payable
1950 19,983 173
1955 11,592 262
1960 20,218 317
1965 32,897 446
1970 64,793 923
1975 156,665 2,254
1980 439,869 10,995
1985 1,032,134 24,556
1990 1,820,468 38,656
1995 3,984,352 116,622

Major assets of commercial banks

Figures below are in millions of Indian Rupees. See [3] and [4]

Year Investments[13] Advances[14]
1950 4,330 5,353
1955 4,600 7,037
1960 7,241 12,458
1965 9,884 21,954
1970 18,148 46,850
1975 45,999 106,167
1980 126,642 272,000
1985 303,378 623,553
1990 687,151 1,095,412
1995 1,750,206 2,243,308

Tarapore committee

The Tarapore committee is a committee setup by the Reserve Bank of India under the chairmanship of former RBI deputy governor S S Tarapore to "lay the road map" to capital account convertibility.

The five-member committee recommended a three-year timeframe for complete convertibility by 1999-2000.

Notes

  1. ^ Reserve Bank of India Act
  2. ^ Cecil Kisch: 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, P. 436.
  3. ^ http://www.rbi.org.in/scripts/briefhistory.aspx
  4. ^ Beth Anne Wilson und Geoffrey N. Keim: India and the Global Economy in Business Economics, January 2006, S.29.
  5. ^ Narenda Jadhav, Partha Ray, Dhritidyuti Bose, Indranil Sen Gupta: THE RESERVE BANK OF INDIÀ`S BALANCE SHEET: ANALYTICS AND DYNAMICS OF EVOLUTION, November 2004, S. 16.
  6. ^ Ananya Mukherjee Reed: Corporate Governance Reforms in India in Journal of Business Ethics, Volume 37, Number 3 / May, 2002, P. 253.
  7. ^ Sunil Kumar, Rachita Gulati: Did efficiency of Indian public sector banks converge with banking reforms? in Int Rev Econ (2009) 56:47–84, S. 47-48.
  8. ^ "History of Reserve Bank". Retrieved 2009-02-24.
  9. ^ Narenda Jadhav, Partha Ray, Dhritidyuti Bose, Indranil Sen Gupta: THE RESERVE BANK OF INDIÀ`S BALANCE SHEET: ANALYTICS AND DYNAMICS OF EVOLUTION, November 2004, S. 16.
  10. ^ Samarjit Das, Kaushik Bhattacharya: Price convergence across regions in India in Empirical Economics (2008) 34:299–313, S. 312.
  11. ^ Alpana Sivam, Sadasivam Karuppannan: Role of state and market in housing delivery for low-income groups in India in Journal of Housing and the Built Environment 17: 69–88, 2002, S.85.
  12. ^ - include fixed, savings, current, contingency accounts, et al.
  13. ^ - include securities of Central and States governments, trustee securities, shares, debentures, gold, et al.
  14. ^ - include loans and advances, cash credit and overdrafts, bills purchased and discounted

See also

External links

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