The Reserve Bank of India (RBI) is the central bank of the Republic of India and the regulatory organisation for the Indian banking & financial system and Indian currency. It is owned by the Ministry of Finance, Government of India, it is responsible for the control, issue, and supply of the Indian rupee. It also manages the country's main payment systems & the foreign exchange under the FEMA Act, 1999. The RBI is a statutory body of the union government and considered State under the Article 12 of the Constitution of India.
The RBI, along with the Indian Banks' Association, established the National Payments Corporation of India to promote and regulate the payment and settlement systems in India. Bharatiya Reserve Bank Note Mudran (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 Mysore (Karnataka; Southern India) and Salboni (West Bengal; Eastern India). Deposit Insurance and Credit Guarantee Corporation was established by RBI as one of its specialized division for the purpose of providing insurance of deposits and guaranteeing of credit facilities to all Indian banks.
The RBI is responsible for formulating and implementing India's monetary policy. The 2016 reform changed the decision-making framework from a Governor-centric model to a committee-based Monetary Policy Committee (MPC) model. It commenced its operations on 2 April 1935 in accordance with the Reserve Bank of India Act, 1934. The original share capital was divided into shares of 100 each fully paid. The RBI was nationalised on 1 January 1949, almost a year and a half after India's independence.
The overall direction of the RBI lies with the 21-member central board of directors, composed of: the governor; four deputy governors; two finance ministry representatives (usually the Economic Affairs Secretary and the Financial Services Secretary); ten government-nominated directors; and four directors who represent local boards for Mumbai, Kolkata, Chennai, and Delhi. 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 bank is also active in promoting financial inclusion policy and is a leading member of the Alliance for Financial Inclusion (AFI). The bank is often referred to by the name "Mint Street".
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; to have a modern monetary policy framework to meet the challenge of an increasingly complex economy, to maintain price stability while keeping in mind the objective of growth.
The Hilton Young Commission (1928), which laid the groundwork for the Reserve Bank of India Act, 1934, considered Dr. B. R. Ambedkar's recommendations. His advocacy for a managed currency system and an independent central bank to regulate credit and control inflation influenced the RBI's establishment in 1935.
Dr. B. R. Ambedkar was critical of British colonial financial policies, particularly the instability caused by the silver standard. He proposed a stable monetary framework and emphasised the need for financial inclusion, ensuring equitable access to banking services. His economic principles continue to influence India's financial policies and central banking regulations.
The Reserve Bank of India was established in 1934, under the Reserve Bank of India Act. Though privately owned initially, it was nationalised in 1949 and since then fully owned by the Ministry of Finance, Government of India (GoI).
The Reserve Bank of India was founded on 1 April 1935 to respond to economic troubles after the First World War. 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. Eventually, the Central Legislative Assembly passed these guidelines as the RBI Act 1934. India was the first colony to have its own central bank.
The original choice for the seal of RBI was the East India Company Double Mohur, with the sketch of the Lion and swimming 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 British India in 1937. After the Partition of India in August-1947, the bank served as the central bank for Pakistan until June-1948 when the State Bank of Pakistan commenced operations. Though set up as a shareholders' bank, the RBI has been fully owned by the Government of India since its nationalisation in 1949. RBI has a monopoly of note issue.
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.
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 initialized on 07-December-1961. The Indian government founded the funds to promote the economy and used the slogan "Developing Banking". The government of India restructured the national bank market and nationalized a lot of institutes. As a result, the RBI had to play the central part in controlling and supporting this public banking sector.
In 1969, the Indira Gandhi-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 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, and the RBI restricted monetary policy to reduce the effects.
Many 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 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.