Reserve Bank of India

Introduction

 The RBI is the apex of all the banks and is the

monetary authority of the country and performs the
function of the central banking of India
 The Reserve Bank of India was established on April 1,
1935 in accordance with the provisions of the Reserve
Bank of India Act, 1934
 The Central Office of the Reserve Bank was initially
established in Calcutta but was permanently moved to
Mumbai in 1937. The Central Office is where the
Governor sits and where policies are formulated.
 Has 19 regional offices, most of them in state capitals
and 9 sub offices.
 The RBI was conceptualized based on the
recommendations of Dr. B.R.Ambedkar to the Royal
Commission on Indian currency and Finance, also known
as the Hilton-Young Commission
 After partition of India in 1947, the bank served as the
central bank of Pakistan as well, until June 1948 when
the State Bank of Pakistan commenced operations.
 RBI has been fully owned by the Government of India
since the nationalization in 1949.
 The Preamble of the Reserve Bank of India
describes the basic functions of the Reserve Bank
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."
Organisational Structure
 The affairs of the RBI are managed by the Central Board
of Directors. It consists of :-
 A Governor, not more than 4 Deputy Governors
appointed by the Central Government under Sec 8(1)
(a) of the RBI Act 1934
 4 directors nominated by the central Government one
from each of the four local boards (Sec 8(1)(b))
 10 Directors nominated by the Central Government
under Section 8(1)(c)
 1 govt official nominated by the Central Government
under section 8 (1) (d)
 The RBI has local Boards with Head quarters at Bombay,
Calcutta, Madras and New Delhi.
 Local Boards consists of 5 members and are appointed
by the Central Government to represent the territorial
and economic interest of co-operative and indigenous
banks
 The Reserve Bank of India has four zonal offices
at Chennai, Delhi, Kolkata and Mumbai.
  It has 19 regional offices and 10 sub-offices. Regional offices
are located in Ahmedabad,
 Bangalore, Bhopal, Bhubaneswar, Chandigarh, Chennai, Delhi
, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kochi, Kolkat
a, Lucknow, Mumbai, Nagpur, Patnaand Thiruvananthapuram.
 It also has 9 sub-offices located
in Agartala, Dehradun, Gangtok, Panaji, Raipur, Ranchi, Shillo
ng, Shimla and Srinagar.
 Recently the RBI has opened two more sub-office
at Aizawal and Imphal
Role of chairman

 The Chairman of the Central Board of Directors

of RBI is called as the Chief Executive Authority
of the Bank , also the Governor!
 He is authorised to exercise all the powers
which may be exercised by the bank, direction
of affairs and business of the bank, general
superintendence, etc.
 In his absence the Deputy Governor nominated
by him exercises the powers of the Governor.
 The Directors are appointed for a term of 4yrs.
 The Governor and Deputy Governor shall hold office for
not more than 5yrs, eligible for reappointment (Sec 8)
 A director will hold office for 4yrs(thereafter till his
successor have been nominated) (Sec 8)
 Local Board shall hold office for 4yrs( thereafter till his
successor is appointed and is eligible for re
appointment) (Sec 9)
 Disqualifications
 No person may be a Director or member of local board who- (Sec 10)
 Is a salaried Govt official
 Anytime adjudicated, insolvent or has suspended payment
 Is lunatic or becomes unsound mind
 Is an officer or employee of any bank
 Is a director of any banking company
(a), (d),(e) will not apply to Governor or Deputy Governor
Removal

 The Central Govt may remove if-

 A Director cease to hold office if without leave from Board and he is
absent from 3 consecutive meetings
 If subject to any disqualifications under section 10
 Such Director will not be eligible for re appointment until the expiry of
term for which appointment was made
 Director may resign his office to the Central Board
 Meetings of the Central Board shall be convened by the
Governor at least 6 times in each yr and at least once in
each quarter
 The Governor(if he is unable to attend, nominated
deputy Governor) shall preside the meeting of the
central board, in the event of equality of votes , shall
have a second or casting vote
 The RBI operates through the following departments:-
 Issue dept, banking dept, department of banking
organisation, agricultural credit department, Industrial
Finance Department, Non- Banking Companies
Department, Exchange Control Dept, Legal, Dept of
Reserve and Statistics, planning and Reorganisation,
Economic dept, Inspection Dept, Accounts and
expenditure, etc
 I. Acts administered by Reserve Bank of India
 Reserve Bank of India Act, 1934
 Public Debt Act, 1944/Government Securities Act, 2006
 Government Securities Regulations, 2007
 Banking Regulation Act, 1949
 Foreign Exchange Management Act, 1999
 Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (Chapter II)
 Credit Information Companies(Regulation) Act, 2005
 Payment and Settlement Systems Act, 2007
 Payment and Settlement Systems Regulations, 2008 and Amended up to 2011 and
BPSS Regulations, 2008
 The Payment and Settlement Systems (Amendment) Act, 2015 - No. 18 of 2015
 Factoring Regulation Act, 2011
 Other relevant Acts
 Negotiable Instruments Act, 1881
 Bankers' Books Evidence Act, 1891
 State Bank of India Act, 1955
 Companies Act, 1956/ Companies Act, 2013
 Securities Contract (Regulation) Act, 1956
 State Bank of India Subsidiary Banks) Act, 1959
 Deposit Insurance and Credit Guarantee Corporation Act, 1961
 Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
 Regional Rural Banks Act, 1976
 Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980
 National Bank for Agriculture and Rural Development Act, 1981
 National Housing Bank Act, 1987
 Recovery of Debts Due to Banks and Financial Institutions Act, 1993
 Competition Act, 2002
 Indian Coinage Act, 2011: Governs currency and coins
Business which the RBI can transact (sec 17)
 Accepting of money for Central Govt, State Govt, local authorities, banks,
etc
 Purchase, sale and rediscounting of bills of exchange and promissory notes
 Purchase from and sale to scheduled banks of foreign exchange
 Making banks , of loans and advances repayable on demand or on expiry
periods
 Making to the central govt or state govt of advances repayable within
3months
 Purchase and sale of securities of central govt or state govt.
 Custody of money, securities and other valuable articles
and the collection proceeds of such securities
 Sale and realisation of all property, movable or
immovable, coming in possession of the bank
 Acting as an agent to the central or state govt, or any
local authority etc
 Opening of an account of a bank incorporated in any
country outside India
 Making and issue of bank notes
 Exercise of powers and functions and performance of
duties entrusted to the Bank under the Act or any other
law
Business which the RBI can’t do

 Engage in trade or have a direct interest in any

commercial, industrial or other undertakings
 Purchase share of any banking company or of any other
company, or grant loans upon the security of any such
shares
 Advance money on mortgage on security of any
property, except so far necessary for its own business
premises and residences for its office and servants
 The Bank shall undertake to accept money for
accounts of CG, to make payments, to carry
out banking operations, including management
of public debt of the Union (Sec 20)
 The bank has the right to transact Govt
business in India (manag. of debt, issue of any
new loans etc.)
 Inthe event of failure to reach agreement on
conditions, CG shall decide what the
conditions shall be
 Bank to transact Govt business of States on agreement
(21A)
 All money, remittance, exchange and banking
transaction, deposits, cash balances, management of
public debt , issue to loans by the State etc in India
 After being made before the Parliament
 Issue of
currency

Banker to Govt

Monetary
Banker to Bank
functions

Control of
credit

Manager of
RBI Foreign
exchange

Collection and
Publication of
Data

Non monetary Regulatory and

functions Supervisory

Development
and Promotion
Powers and Functions of RBI

 Issue of currency in India: Monopoly of note issue (Sec

22).
 The Bank shall have the sole right to issue bank notes,
and for period fixed by the CG on recommendation of
the Central Board
 Issue Department will conduct the issue of bank notes
 Issue dept will not issue bank notes to banking Dept or
any other person except in exchange of coin, bullion or
securities as a part of reserve. (Sec 23)
 bank notes shall be of the denominational
values of Rs 5, Rs 10, Rs 20, Rs, 50, Rs 100,
Rs 500, Rs2000 or of such other
denominational values, not exceeding ten
thousand rupees, as the CG may, on the
recommendation of the Central Board,
specify in this behalf.
 The CG may , on recommendation of the
Central Board direct the non issue or
discontinuance of bank notes of such
denominational value as it may specify on
his behalf
 The design, form and material of bank notes shall be
such as may be approved by the Central Government
after consideration of the recommendations made by
Central Board. (Sec 25)
 The Bank shall not re-issue bank notes which are torn,
defaced or excessively soiled.
 Bank shall not be liable to the payment of any stamp
duty under the Indian Stamp Act, 1899, in respect of
bank notes issued by it
 If in the opinion of the CG, bank fails to carry out any
obligation, the CG may by notification, declare the
Central Board to be superseded, the general
superintendence and direction of the affair of the Bank
shall be entrusted to an agency determined by the CG
 Such action shall cause to full report to be laid before
Parliament at earliest as possible within 3months from
the issue of notification superseding the Board (Sec 30)
 The aggregate value of the gold coin and gold bullion held
as assets shall not at any time be less than 200crores of
rupees and 100crores of rupees
 For this purpose, gold coins and gold bullions shall be at a
price not exceeding the international market price, rupee
coin at its face value and foreign securities at rates not
exceeding the market rates
 Also, gold belonging to the Bank in any other bank or
treasury or in transit may be considered as a part of the
assets (Sec 33)
 Banker to Government
 The RBI performs merchant banking functions for the
Central and State Govt. It looks after the current financial
transactions of the Govt and manages the Govt securities
and public debt of the Govt.
 Banker to Commercial Banks
 The RBI acts as a banker to Banks. It maintains banking
accounts of all scheduled banks.
 The commercial banks keep deposits with the RBI and they
borrow money from the bank when necessary
 Organiser of commercial banking system- RBI
is largely concerned with the organisation of a
sound and healthy commercial banking system,
ensuring effective co ordination and control
over credit through appropriate monetary and
credit policies followed from time to time
 Regulator and supervisor of the Financial
System-
RBI prescribes broad parameters of banking
operations within which the country’s banking
and financial system functions. The objective
is to maintain public confidence in the system,
protect depositor’s interest and provide cost
effective banking services to the public
 Financial Supervision- RBI performs this function under
the supervision of Board of Financial Supervision (BFS)
 Monetary Authority- RBI formulates, implements and
monitors the monetary policy. The main objective is
maintaining price stability and ensuring adequate flow of
credit to productive sectors
 Monetary and Credit Policies- RBI makes Annual
Policy Statements and takes several monetary,
liquidity and credit policy measures and determines
key policy rates, such as CRR, SLR, Repo Rate, Reverse
Repo Rate, etc
 RBI also undertakes half yearly, Mid Term or quarterly
reviews of such policies.
 Controls the credit volume of the credit- RBI
exercises control over the volume of credit created by
the commercial banks in order to ensure price stability
 It is empowered to control the volume of the credit
quantitatively through use of repo rate, reverse repo
rate, Selective Credit control etc.
 Under Sec 21 of the Banking Regulation Act, RBI has
been given power to control advances granted by the
commercial banks
 Authority to regulate and supervise
Payment System- RBI has been designated
under the Payment and Settlement Systems
Act, 2007 as the authority to regulate and
supervise payment system in the country,
including those operated by Non Banks such
as, Card Companies and other payment
system providers
 Manager of Foreign Exchange- RBI manages
the Foreign Exchange Management Act, 1999.
 The objective is to facilitate external trade
and payment and promote orderly
development and maintenance of Foreign
Exchange market in India
 Maintains the value of currency- RBI has
the power to maintain not only the internal
value of currency but also the external value
of currency
 Promotional Role of RBI- RBI also acts as a promoter of
Financial Institutions in the country, so far as that to its
polices can be effective to in promoting economic growth
 Many steps were taken by RBI such as:-
 Established financial Corporations to provide credit
facilities to the agricultural sector and Industrial sector
 It has promoted RRBs with the help of commercial banks
 Help commercial banks to open branches in foreign
centres, EXIM Bank to provide finance to exporters
 It also encourages and promotes reseaech in the area of
banking
Other functions of RBI

 Caution, prohibit and advice the banking companies-

It may do it in particular against entering into any
particular transaction or class of transaction , and
advice to banking company
 Assist as intermediary in amalgamation- on request by
bank or banking companies, RBI may assist, as
intermediary or otherwise, in proposal for the
amalgamation of such banking companies
 Assist by granting loans and advances
Other powers of RBI

 Power to audit bank’s books of accounts-

 Under sec 30 of the BR Act, a person qualified for the
time being in force to be an auditor of the companies
shall audit the balance sheet and profit and loss account
. RBI may at any time order special audit for any
transaction or class of transaction for such period or
periods, in public interest or interest of the Banking
comp or depositor.
 Power of RBI to appoint additional Directors – in the
interest of the banking policy or public interest, RBI
may appoint from time to time one or more persons as
additional directors of the banking company
 Safeguarding the depositors- before admitting any banking
company as a scheduled company , RBI satisfies itself that
the affairs of such banking company or bank are not being
conducted in detrimental to the interest of the depositors.
It checks the quality of management, qualifications of the
directors, state of reserves, quality and extent of securities
 RBI to control the activities of commercial banks
 RBI to issues licence to commercial banks/branches
Order in writing Meeting, etc

 RBI may at any time, if satisfied, in public interest or in

the interest of banking policy or for preventing affairs
of the Banking Company being conducted in a manner
detrimental to the interest of company or depositors,
by order in writing-
 Ask banking comp to call a meeting of its directors for
any matter relating to or arising out of affairs of the
banking comp, or require any officer to discuss any
matter with an officer of RBI
 Depute one of its officer to watch the proceedings at
any meeting of the Board of Directors of the banking
comp or any committee, require such officer to watch
the proceeding and send a report of such proceeding to
RBI
 Appoint one or more officer to observe the manner in
which the affairs of the comp or officers or branch is
operated and make a report for the same
 Require the banking comp within such time as may be
specified to make such changes in the management as
the RBI may consider necessary
 Overall control over management of
banks- The approval of RBI is necessary
for the appointment, re-appointment, or
termination of an appointment of a
Chairman, managing or whole time
director. Also have the power to prevent
certain types of transactions
 Reserve rates and policy rates
prescribed by RBI
 Publication of consolidated statement by bank- Bank
shall cause to publish each fortnight a consolidated
statements showing aggregate liabilities and assets of
all scheduled banks together, based on returns and
information received under the RBI Act or any other law
for the time being in force (Sec 43)
 Protection of action taken in good faith (Sec 43A)
 No suit or other legal proceeding shall lie against the
bank or any of its officer for anything done or intended
to be done in good faith
 Power of Bank to collect credit information-The Bank may
collect, in such manner as it may think fit, credit
information from banking companies (Sec 45B)
 Power to call for returns containing credit information- it
may at any time direct any banking company to submit to it
such statements relating to such credit information and in
such form and within such time as may be specified by the
Bank from time to time (45C)
 Procedure for furnishing credit information to
banking companies.
 (1) A banking company may, make an application to
the Bank in such form as the Bank may specify
requesting it to furnish the applicant with such credit
information as may be specified in the application.
 (2) On receipt of an application under sub-section (1),
the Bank shall, as soon as may be, furnish the
applicant with such credit information relating to the
matters specified in the application, as may be in its
possession:
 (3) The Bank may in respect of each application levy
such fees, not exceeding twenty-five rupees, as it
may deem fit for furnishing credit information.
 shall be treated as confidential and shall not, except
for this purposes, be published or otherwise disclosed.
 Nothing in this section will apply to-
 the disclosure by any banking company,
with the previous permission of the Bank,
 For public interest
 practice and usage customary among
bankers or as permitted or required under
any other law
 Annual report to Central Govt- RBI shall
make an annual report to the CG on the
trends and progress of banking in the
country, including its suggestions, if any,
for the strengthening of banking business
throughout the country
Non Banking Institutions

 Requirement of registration and net owned fund (Sec

45-IA)
 no non-banking financial company shall commence or
carry on the business of a non-banking financial
institution without–
 (a) obtaining a certificate of registration issued under
this Chapter; and
 (b) having the net owned fund of twenty-five lakh
rupees or such other amount, not exceeding two
hundred lakh rupees, as the Bank may, by notification
in the Official Gazette, specify.
 A non banking company having a net owned fund of less
than twenty-five lakh rupees may, for the purpose of
enabling such company to fulfil the requirement of the net
owned fund, continue to carry on the business of a non-
banking financial institution–
 (i) for a period of three years from such commencement; or
 (ii) for such further period as the Reserve Bank may, after
recording the reasons in writing for so doing, extend,
subject to the condition that such company shall, within
three months of fulfilling the requirement of the net owned
fund
 Provided that the period allowed to continue business
under this subsection shall in no case exceed six years in
the aggregate.
 The and for considering the application for registration ,
requires to be satisfied by an inspection of the books of
the NBFC or-
 Shall be in a position to pay its present or future
depositors when their claims accrue
 Affairs of NBFC are not in a manner detrimental to the
interest of its present or future depositors
 General character of management shall not be prejudicial
to the public interest or interest of the depositors
 Have adequate capital structure
 Public interest shall be served
 RBI may cancel a certificate of registration to a NBFC if-
 ceases to carry on the business of a non-banking financial
institution in India; or
 has failed to comply with any condition subject to which
the certificate of registration had been issued to it
 fails–
 (a) to comply with any direction issued by the Bank under
the
 provisions of this chapter; or
 (b) to maintain accounts in accordance with the
requirements of any law or any direction or order issued by
the Bank under the provisions
 (c) to submit or offer for inspection its books of account
and other relevant documents when so demanded by an
inspecting authority of the Bank
 company aggrieved by the order of rejection of application
for registration or cancellation of certificate of registration
may prefer an appeal,
 within a period of thirty days from the date on which such
order of rejection or cancellation is communicated to it, to
the Central Government
 Before making order for rejection such company shall be
given a reasonable opportunity of being heard.
 shall create a reserve fund and transfer therein a sum not
less than twenty per cent of its net profit every year as
disclosed in the profit and loss account and before any
dividend is declared
 Bank is satisfied that, in the public interest or to regulate
the financial system of the country to its advantage or to
prevent the affairs of
 any non-banking financial company being conducted in a
manner detrimental to the interest of the depositors or
 in a manner prejudicial to the interest of the non-banking
financial company determine polices and issue directions
(Sec 45JA)
 at any time direct that every non-banking institution shall
 furnish to the Bank, in such form, at such intervals and
within such time, such
 statements, information or particulars relating to or
connected with deposits
 received by the non-banking institution, as may be
specified by the Bank

 duty of every non-banking institution to furnish the

statements, information or particulars called for, and to
comply with any direction given to it
 duty of an auditor of a non-banking institution
to inquire whether or not the non-banking
institution has furnished to the Bank such
statements, information or particulars relating
to or connected with deposits received by it
(Sec 45M)
 He will make a report of the same and will
submit it to the RBI with all the necessary
information.
 If RBI wants he can appoint a special auditor to
audit any or any class of transactions
 WINDING UP-
 The Bank, on being satisfied that a non-banking financial
company,–
 (a) is unable to pay its debt; or
 (b) has by virtue of the provisions of section 45-IA become
disqualified to
 carry on the business of a non-banking financial institution;
continuance of the non-banking financial company is
detrimental
 to the public interest or to the interest of the depositors of
the company
 unable to pay its debt if it has refused or has failed to meet
within five working days any lawful demand made at any of
its offices or branches and the Bank certifies in writing that
such company is unable to pay its debt