The 

Reserve Bank of India (RBI, Hindi: भारतीय रिज़र्व बैंक) is the central banking system of India and

controls the monetary policy of the rupee as well as US$300.21 billion (2010)[1] of 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[2] and plays an important part in the development strategy of the
government. It is a member bank of the Asian Clearing Union.

History
1935—1950

The old RBI Building in Mumbai

The central bank was founded in 1935 to respond to economic troubles after the first world war.[3] 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 continued to act as the central bank
for Myanmar till Japanese occupation of Burma and later up to April 1947, though Burma seceded from
the Indian Union in 1937. After partition, the Reserve Bank served as the central bank for Pakistan until
June 1948 when theState Bank of Pakistan commenced operations. Though originally set up as a
shareholders’ bank, the RBI has been fully owned by the government of India since its nationalization in
1949.[4]

1950—1960
Between 1950 and 1960, the Indian government developed a centrally planned economic policy and
focused on the agricultural sector. The administration nationalized commercial banks[5] and established,
based on the Banking Companies Act, 1949 (later called Banking Regulation Act) a central bank
regulation as part of the RBI. Furthermore, the central bank was ordered to support the economic plan
with loans.[6]

1960—1969
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 restructured the national bank market and nationalized a
lot of institutes. As a result, the RBI had to play the central part of control and support of this public
banking sector.

1969—1985
Between 1969 and 1980, the Indian government nationalized 20 banks. The regulation of the economy
and especially the financial sector was reinforced by the Gandhi administration and their successors in
the 1970s and 1980s.[7] The central bank became the central player and increased its policies for a lot of
tasks like interests, reserve ratio and visible deposits.[8] The measures aimed at better economic
development and had a huge effect on the company policy of the institutes. The banks lent money in
selected sectors, like agri-business and small trade companies.[9]

The branch was forced to establish two new offices in the country for every newly established office in a
town.[10] The oil crises in 1973 resulted in increasing inflation, and the RBI restricted monetary policy to
reduce the effects.[11]12

1985—1991
A lot of committees analysed the Indian economy between 1985 and 1991. Their results had an effect on
the RBI. The Board for Industrial and Financial Reconstruction, 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" (Mackinnon and Shaw).[12] The Discount and Finance House of India began its
operations on 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.[13]

1991—2000
The national economy came down in July 1991 and the Indian rupee was devalued.[14] The currency lost
18% relative to the US dollar, and the Narsimahmam 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 should reinforce the market and was often
called neo-liberal[15] The central bank deregulated bank interests and some sectors of the financial market
like the trust and property markets.[16] This first phase was a success and the central government forced a
diversity liberalisation to diversify owner structures in 1998.[17]

The National Stock Exchange of India took the trade on in June 1994 and the RBI allowed nationalized
banks in July to interact with the capital market to reinforce their capital base. The central bank founded a
subsidiary company—the Bharatiya Reserve Bank Note Mudran Limited—in February 1995 to produce
banknotes.[18]

Since 2000
The Foreign Exchange Management Act from 1999 came into force in June 2000. It should improve the
foreign exchange market, international investments in India and transactions. The RBI promoted the
development of the financial market in the last years, allowed online banking in 2001 and established a
new payment system in 2004 - 2005 (National Electronic Fund Transfer).[19] The Security Printing &
Minting Corporation of India Ltd., a merger of nine institutions, was founded in 2006 and produces
banknotes and coins.[20]

The national economy's growth rate came down to 5.8% in the last quarter of 2008 - 2009[21] and the
central bank promotes the economic development.[22]

Structure
Central Board of Directors
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, four deputy governors,
four directors to represent the regional boards, and ten other directors from various fields.

Governors
The central bank had 21 governors . Current Governor of Reserve Bank of India is Dr. D Subbarao. The
Reserve Bank of India currently has 4 Deputy Governors - Smt. S. Gopinath, Dr. K.C. Chakrabarty,
Dr. Subir Gokarn and Shri Anand Sinha.

Supportive bodies
The Reserve Bank of India 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 serve - beside the advice of the Central Board of Directors - as a
forum for regional banks and to deal with delegated tasks from the central board.[23] The institution has 22
regional offices.

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

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).

Offices and branches

The Reserve Bank of India has 4 regional offices ,15 branches and 5 sub-offices.[24]. It has 22 branch
offices at most state capitals and at a few major cities in India. Few of them are located
in Ahmedabad, Bangalore, Bhopal, Bhubaneswar, Chandigarh, Chennai, Delhi, Guwahati,Hyderabad, Jai
pur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, Patna, andThiruvananthapuram. Besides it
has sub-offices at Dehradun, Gangtok, Kochi, Panaji, Raipur, Ranchi, Shimla and Srinagar.

The bank has also two training colleges for its officers, viz. Reserve Bank Staff College at Chennai and
College of Agricultural Banking at Pune. There are also four Zonal Training
Centresat Belapur, Chennai, Kolkata and New Delhi.

Main functions

Reserve Bank of India regional office, Delhi entrance with the Yakshini sculpture depicting "Prosperity through agriculture".
[25]

The RBI Regional Office in Delhi.

The RBI Regional Office in Kolkata.

Monetary authority
The Reserve Bank of India is the main monetary authority of the country and beside that the central bank
acts as the bank of the national and state governments. It formulates, implements and monitors the
monetary policy as well as it has to ensure an adequate flow of credit to productive sectors. Objectives
are maintaining price stability and ensuring adequate flow of credit to productive sectors. The national
economy depends on the public sector and the central bank promotes an expansive monetary policy to
push the private sector since the financial market reforms of the 1990s.[26]

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.
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 and has to decide the
design of the rupee banknotes as well as coins.[27]

Manager of exchange control

The central bank manages to reach the goals of 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
The bank issues and exchanges or destroys currency and coins not fit for circulation. The objectives are
giving the public adequate supply of currency of good quality and to provide loans to commercial banks to
maintain or improve the GDP. 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
The central bank has to perform a wide range of promotional functions to support national objectives and
industries.[6] 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.[28]

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 (NHB) was established in
1988 to promote private real estate acquisition.[29] The institution maintains banking accounts of all
scheduled banks, too.

There is now an international consensus about the need to focus the tasks of a central bank upon central
banking. RBI is far out of touch with such a principle, owing to the sprawling mandate described above.
The recent financial turmoil world-over, has however, vindicated the Reserve Bank's role in maintaining
financial stability in India.

RBI has various tools to control which are listed below

(a) Bank Rate: RBI (Reserve Bank of India) lends to the commercial banks through its discount window to
help the banks meet depositor’s demands and reserve requirements. The interest rate the RBI charges
the banks for this purpose is called bank rate. If the RBI wants to increase the liquidity and money supply
in the market, it will decrease the bank rate and if it wants to reduce the liquidity and money supply in the
system, it will increase the bank rate. The current rate is 6%.

(b) Cash Reserve Requirements (CRR): Every commercial bank has to keep certain minimum cash
reserves with RBI. RBI can vary this rate between 3% and 15%. RBI uses this tool to increase or
decrease the reserve requirement depending on whether it wants to affect a decrease or an increase in
the money supply. An increase in CRR will make it mandatory on the part of the banks to hold a large
proportion of their deposits in the form of deposits with the RBI. This will reduce the size of their deposits
and they will lend less. This will in turn decrease the money supply. The current rate is 6%.

(c) Statutory Liquidity Requirements (SLR): Apart from the CRR, banks are required to maintain liquid
assets in the form of gold, cash and approved securities. RBI has stepped up liquidity requirements for
two reasons: - 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 operations- buying and selling of eligible
securities by 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 more to open market operations in the more recent years.

Generally RBI uses three kinds of selective credit controls:

a) Minimum margins for lending against specific securities. b) Ceiling on the amounts of credit for certain
purposes. c) Discriminatory rate of interest charged on certain types of advances.

Direct credit controls in India are of three types:

a) Part of the interest rate structure i.e. on small savings and provident funds, are administratively set. b)
Banks are mandatorily required to keep 25% of their deposits in the form of government securities. c)
Banks are required to lend to the priority sectors to the extent of 40% of their advances.