| 2024

RESERVE BANK OF INDIA SYSTEM

The Reserve Bank of India (RBI), as the central banking institution of India, is the backbone of the
Indian financial system. As the custodian of the country’s economic and financial stability, it plays a crucial
role in India’s economic development and smooth functioning of the entire banking sector.
About Reserve Bank of India (RBI)
 The Reserve Bank of India, abbreviated as the RBI, is the Central Bank of India, meaning it is
the apex body in the Indian financial system.
 It is owned by the Union Ministry of Finance.
 It acts as a regulatory body, responsible for the regulation of the Indian banking system as well
as the control, issuing, and maintaining money supply in the Indian economy.
Note: India was the first British colony to have its own Central Bank.

Objectives of Reserve Bank of India (RBI)

Some of its major objectives can be seen as follows:
 To regulate the issue of banknotes
 To maintain reserves with a view to securing monetary stability and
 To operate the credit and currency system of the country to its advantage.
 To maintain price stability while keeping in mind the objective of growth.

Nationalization of Reserve Bank of India (RBI)

The Reserve Bank of India (RBI), as established in 1935, was, initially, a privately owned entity. It meant
that its share capital was divided into shares, owned by private individuals and institutions.

However, later, the Government of India passed the Reserve Bank of India (Transfer to Public
Ownership) Act, 1948. As per its provisions, the ownership of the Reserve Bank of India was
transferred from private entities to the government. This is called the nationalization of the RBI, which
transformed it from a privately owned entity to a fully government-owned entity.

After nationalization in 1949, it emerged as the Central Bank of India and no more remained a ‘bank’ in the
technical sense.

Branches and Offices of RBI

Various branches and offices of RBI can be seen hierarchically as follows:
Central Office of RBI
The Central Office of the Reserve Bank of India is the main office and headquarters of the RBI. This is
the office where the RBI Governor sits and the whole organization of the RBI is controlled from.
Zonal Offices of RBI
The RBI has 4 Zonal Offices, located in
 Kolkata – represents the East Region
 Mumbai – represents the West Region
 Delhi – represents the North Region
 Chennai – represents the South Region
Regional Offices of RBI
The Reserve Bank of India (RBI) has about 22 regional offices, which play a crucial role in the functioning
of the RBI at the regional level. These offices are mostly located in the capital cities of the states.
Other Offices of RBI
The RBI has other offices in prominent cities across India, which perform specific tasks like:
 Specialized departments like rural planning or agricultural credit.
 Training centers for bankers.
 Oversight of specific financial institutions.
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RESERVE BANK OF INDIA SYSTEM
Structure of Reserve Bank of India (RBI)

The structure of the Reserve Bank of India (RBI) can be seen as follows:

Central Board of Directors of RBI

The Central Board of Directors is the main committee of the Reserve Bank of India, responsible for its
overall control and direction. It is a 21-member body, comprising the following members:
 Official Directors – They include:
o The Governor of the Reserve Bank of India.
o Not more than 4 Deputy Governors (for a tenure of not more than 5 years)
 Non-Official Directors – They include
o 10 Directors from various fields, nominated by the Government of India (for a tenure
of 4 years)
o 4 Directors representing the 4 Local Boards of the Reserve Bank of India (1 Director
nominated by each of the 4 Local Boards – Mumbai, Kolkata, Chennai, and Delhi)
o 2 Government officials nominated by the Government of India
Local Boards of RBI
 The 4 Zonal Offices of the Reserve Bank of India are controlled by a Local Board for each.
 Each of these local boards consists of 5 members who represent regional interests and the
interests of cooperative and indigenous banks.
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RESERVE BANK OF INDIA SYSTEM
Functions of Reserve Bank of India (RBI)
Major functions of the RBI can be seen under the following 2 heads:
Monetary Functions of RBI
Monetary Functions of the Reserve Bank of India include those functions which are concerned with
money and money supply in the economy. Major functions coming in this category include:
 Issuer of Bank Notes: The Reserve Bank of India has the monopoly of issuing currency notes
except for 1 Rupee note and coins.
o The 1 Rupee note and the coins of all denominations are minted and issue by the
Government of India, not the RBI. But, they are circulated by the RBI.
o The RBI issues currency notes under a system called Minimum Reserve System.
 Banker to the Government: The RBI acts as a banking agent and financial advisor to the
Central as well as the State Governments. In this capacity, the RBI:
o Manages Government accounts and treasuries.
o Keeps deposits of the Government.
o Lends to the Governments without any interest for the short term
o Buys and sells Government Securities (G-Secs) on the Government’s behalf.
o Gives monetary and financial advice to the Governments.
 Bankers’ Bank: The RBI is the banker of all Scheduled commercial banks (SCBs). In this
capacity, it performs the following functions:
o Keeps the reserves of banks in the form of Cash Reserve Ratio (CRR) with itself.
o Provides financial assistance to banks against mortgaged securities
o Rediscounts Bills of Exchange.
 Lender of Last Resort: It also acts as a lender of last resort for the Scheduled Commercial Banks
(SCBs). Usually, banks and other financial institutions borrow and lend among themselves to
meet their financial needs. But, in times of crisis, the SCBs approach the RBI to get financial
assistance.
 Custodian and Manager of Foreign Exchange Reserves: In order to stabilize the external value
of Indian currency, the RBI maintains the reserves of foreign currencies to stabilize the exchange
rate.
o This function of the RBI also helps promote international trade.
 Controller of Credit or Money Supply: It uses its monetary policy tools to control the volume
of money supply according to the economic situation of the nation.
o This helps in controlling inflation and deflation and hence stabilizing the general price
level in the economy.
General Functions of RBI
The General Functions of the RBI include functions related to general regulation and promotion of the
banking system so as to maintain the health and growth of the banking system in the country. Major
functions included in this category are as follows:
 Regulator of the Banks: The RBI Act of 1934 and the Banking Regulation Act of 1949 entrust
the RBI with the powers to regulate the banks in the country. In this capacity, the RBI performs
functions such as:
o Licensing banks,
o Prescribing minimum requirements of paid-up capital and reserves, etc.
 Promotional Functions: The RBI works towards the promotion of the Indian Financial System
through functions such as
o Enabling expansion of the Commercial Banks in terms of their branches in the country
or aboard,
o Promoting baking habits of people,
o Promoting financial inclusion,
o Consumer education and protection,
o Promoting Digital India initiatives in financial sector, etc.
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RESERVE BANK OF INDIA SYSTEM