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Indian Economy

Reserve Bank of India (RBI): Origin, Structure, Functions & More

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. This article of NEXT IAS aims to study in detail the Reserve Bank of India (RBI), its origin, evolution, structure, functions, and more.

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.

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.

History of Reserve Bank of India (RBI)

The Reserve Bank of India was established to tackle the economic turmoil that occurred after World War-I. The timeline of origin and evolution of the Reserve Bank of India (RBI) can be seen as follows:

Note: India was the first British colony to have its own Central Bank.

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.

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:

The Governor of the Reserve Bank of India.
Not more than 4 Deputy Governors (for a tenure of not more than 5 years)
10 Directors from various fields, nominated by the Government of India (for a tenure of 4 years)
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)
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.

Key Facts about RBI

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:

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.
The RBI issues currency notes under a system called Minimum Reserve System.
Manages Government accounts and treasuries.
Keeps deposits of the Government.
Lends to the Governments without any interest for the short term
Buys and sells Government Securities (G-Secs) on the Government’s behalf.
Gives monetary and financial advice to the Governments.
Keeps the reserves of banks in the form of Cash Reserve Ratio (CRR) with itself.
Provides financial assistance to banks against mortgaged securities
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.
This function of the RBI also helps promote international trade.
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:

Licensing banks,
Prescribing minimum requirements of paid-up capital and reserves, etc.
Enabling expansion of the Commercial Banks in terms of their branches in the country or aboard,
Promoting baking habits of people,
Promoting financial inclusion,
Consumer education and protection,
Promoting Digital India initiatives in financial sector, etc.

Currency Notes Printing and Coins Minting in India

Minimum reserve system.

In 1957, the RBI adopted the Minimum Reserve System for issuing currency notes. As per this system, to issue money, the RBI maintains Gold and Foreign Currency Reserves of worth ₹ 200 crores as a backup.

Note : Out of this reserve, a minimum of ₹115 crores should be in Gold.

Publications of RBI

RBI, from time to time, conducts various surveys and publishes various reports to gauge the pulse of the economy. Some of the major publications of the RBI include:

Financial Stability Report (Half-Yearly) : It reflects the collective assessment of the risks to financial stability and the resilience of the financial system. The Report also discusses issues relating to the development and regulation of the financial sector.
It plays a crucial role in determining the policy rate required to achieve the inflation target.
Consumer Confidence Survey (Quarterly): It compiles qualitative responses from households, regarding their sentiments on general economic conditions, overall price situation, employment, income, spending scenario, etc.
The results of this survey is used as one of the important inputs for the formulation of the monetary policy.
Report on Foreign Exchange Reserves (Half-Yearly): It contains the developments regarding movement of foreign exchange reserves, information on the external liabilities vis-à-vis the reserves, adequacy of reserves, objectives of reserve management, statutory provisions, risk management practices, information on transparency and disclosure practices, etc.
Payment Enablers
Payment Infrastructure – Demand-side Factors
Payment Infrastructure – Supply-side Factors
Payment Performance
Consumer Centricity

Incomes and Expenditures of RBI

Major components of the incomes and expenditures of the RBI can be seen under the following 2 heads:

RBI’s Incomes

Most part of the RBI’s income mainly comes from its operations in financial markets. They include:

Incomes form buying or selling foreign exchange.
Incomes from Open Market operations (to prevent the rupee from appreciating).
Incomes from government securities it holds.
Returns from its foreign currency assets that are invested in the bonds of foreign central banks or top-rated securities.
Returns from deposits with other central banks or the Bank for International Settlement (BIS).
Returns from From lending to banks for very short tenures
Management commission on handling the borrowings of State Governments and the Central Government.

RBI’s Expenditures

Major components forming part of expenditures of the Reserve Bank of India include:

Expenditures on printing of currency notes
Salary of its staff
Giving commissions to banks for undertaking transactions on behalf of the government
Giving commissions to primary dealers for underwriting some of these borrowings.

Issue of RBI Surplus Transfer

What is rbi surplus.

The RBI’s total expenditure is only about 1/7th of its total net income. The difference between RBI’s income and expenditure is known as RBI Surplus.

Out of its total surplus, RBI holds some amount to itself as equity capital to maintain its creditworthiness and pays the rest to the government.

Government’s Stance on Surplus Transfer

The government is of the opinion that the Reserve Bank of India should pay more dividends. The reasoning given by the government is that the building up of buffers such as the Contingency Fund and Asset Reserve by the Central Bank has been far in excess of what is required to maintain creditworthiness.

RBI’s Stance on Surplus Transfer

The Reserve Bank of India, on the other hand, says that increasing the dividend payment to the government can prove to be inflationary as there will be more money in the market and may harm its major task of macroeconomic stability.

It also reasons that the surplus is used to cover a situation where the rupee appreciates against one or more of the currencies or if there is a decline in the rupee value of gold.

Advantages of Surplus Transfer

The government can utilize funds for public spending, which could lead to a revival in demand and boost economic activity and thus help deal with economic slowdown.
It can help the government cut back on planned borrowings, thereby providing space for private companies to raise money from markets. This, in turn, would do away the risk of crowding out of private investments.
It can be utilized to provide capital to government-owned banks in form of recapitalization. This will help strengthen the health of the banking system.

Disadvantages of Surplus Transfer

It reduces RBI’s Buffer against externalities such as potential threats from financial shocks, and the need to ensure financial stability and provide confidence to the markets.
Maintaining a sufficient buffer of the surplus is crucial for the autonomy of the Reserve Bank of India so that it doesn’t depend on the Government in times of financial stress.
Surplus transfers can cause inflationary situations if government spending is not done in a proper manner.

Autonomy of Reserve Bank of India (RBI)

As the Central Bank of India, the role of the Reserve Bank of India is crucial in promoting financial stability and economic growth. Thus, it must have a significant degree of autonomy in its functioning. However, some factors seem to hamper the autonomy of the RBI. These factors the suggested way ahead are explained in the sections that follow.

Factors Hampering Autonomy of RBI

Section 30 of the RBI Act allows the government to supersede the RBI’s Central Board.
Section 58 circumscribes the powers of the Central Board to make regulations only with the previous sanction of the Central Government.
Section 7(1) says that the Union government can give directions to the central bank, after consultation with the RBI Governor in the public interest.
According to a report, since independence, 7 out of every 10 RBI Governors have been former Finance Ministry officials . This raises the question of the independent functioning of the Reserve Bank of India.
The Central Board of Directors, the highest decision-making body of the RBI, consists of 21 members, of which 12 members are nominated by the Union government. This gives the government a large say in the functioning of the Reserve Bank of India.
The government frequently asks the Reserve Bank of India to ease lending rules under its Prompt Corrective Action (PCA) Framework, as it could help reduce pressure on MSMEs and Power Companies through credit availability. This jeopardizes the RBI’s efforts to deal with the country’s Non-Performing Asset (NPA) Crisis.
The issue of increasing RBI Surplus Transfer has been also hampering the autonomy of RBI.

The tussle between the Reserve Bank of India and the government can impact the image of India as a stable market as investors require long-term policy consistency. Thus it is necessary that the government should respect the mandate given to the Reserve Bank of India as a regulator of the banks. At the same time, the RBI must also understand that constitutionally it is a part of the government and not a completely independent body. Thus, both sides should maintain a fine balance so as to ensure the objectives of stable economic growth and welfare of the people.

The Reserve Bank of India (RBI) plays an indispensable role in India’s economic well-being. Its commitment to monetary stability, financial regulation, and inclusive growth ensures a strong foundation for the nation’s financial system. As India navigates an evolving economic landscape, the RBI’s continued vigilance and adaptability will be crucial in steering the country towards a prosperous future.

FAQs on RBI

Who is the governor of the reserve bank of india.

Shri Shaktikanta Das is serving as the current & 25th Governor of the RBI.

Is RBI a Statutory Body?

Yes, it is a statutory body. It was established under the Reserve Bank of India Act, 1934, which defines the RBI’s powers and functions.

Where is the Reserve Bank of India Situated?

The central office of the RBI, which functions as its headquarters, is located in Mumbai.

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The Increasing Importance of the Reserve Bank of India

India is one of the fastest-growing economies in the world, reporting some of the best gross domestic product (GDP) growth rates in the world. It is also one of the five most powerful emerging market countries. This group, which includes Brazil, Russia, China, and South Africa, are collectively known as the BRICS nations . The country's monetary and fiscal policies are the responsibility of the country's central bank, the Reserve Bank of India (RBI) . Headquartered in India's finance capital, Mumbai, the bank had over $818.33 billion in assets.

Key Takeaways

The Reserve Bank is India's central bank.
It began operations in 1935—a year after the establishment of the Reserve Bank of India Act of 1934.
The RBI is responsible for regulating currency, securing monetary stability, maintaining currency reserves, and overseeing India's credit and currency system.
RBI Governor Shaktikanta Das was appointed in December 2018.
India's economy is the fifth-largest in the world, after the United States, China, Japan, and Germany.

History of the Reserve Bank of India (RBI)

The Reserve Bank of India began operations as the country's central bank in April 1935 following the establishment of The Reserve Bank of India Act of 1934. The Act provides the framework for the central bank, which was set up at the behest of the Hilton Young Commission, also called the Royal Commission on Indian Currency and Finance.

It originally served as a shareholder's bank until 1949 when it was nationalized. The RBI had a key role in the development of the nation's economy beyond just monetary and fiscal policy . Its development policies extended to other sectors, such as agriculture. It also helped set up a number of key national institutions, such as the Deposit Insurance and Credit Guarantee Corporation of India, the Industrial Development Bank of India, and the National Bank of Agriculture and Rural Development.

Over time, the bank's focus shifted, narrowing it down to the traditional functions of a central bank. It now has three main objectives, which include:

Regulating and issuing currency
Securing India's monetary stability by maintaining currency reserves
Overseeing and operating the nation's credit and currency system

The RBI is headed by Governor Shaktikanta Das, who was appointed to head up the bank in December 2018. His support of demonetization is in line with the views of top government officials. He is also expected to better align with India’s government leadership and amicably support better access to credit.

The Reserve Bank of India played a central role in the economies of a number of countries in the region, including Myanmar until 1947 and Pakistan until 1948—about a year after Partition.

The Reserve Bank of India (RBI) and the Indian Economy

As with all economies, the central bank plays a key role in managing and monitoring the monetary policies affecting both commercial and personal finance as well as the banking system.

Demonetizing the Rupee

The bank affected a demonetization of the Indian rupee (INR) in 2016, removing Rs. 500 and Rs. 1000 notes from circulation, eliminating nearly 86% of its money overnight. The move aimed to stop counterfeiting , hoarding, terrorism-related activities, and tax evasion in a country where only 1% of citizens reportedly paid income taxes in 2013.

The analysis following this decision shows some wins and losses. The demonetization of the specified currencies caused cash shortages and chaos while also requiring extra spending from the RBI to print more money. On the other hand, tax collection increased, which resulted from greater consumer reporting transparency .

India is part of the BRICS group, which also includes Brazil, Russia, China, and South Africa. The economies of these countries are expected to dominate the global economy in the future. This informal group offered full membership to Argentina, Ethiopia, Iran, Saudi Arabia, Egypt, and the United Arab Emirates, which goes into effect on Jan. 1, 2024.

Controlling Inflation

The central bank must also grapple with a slightly volatile inflation rate. The RBI Act of 1934 requires the bank and the federal government to consult with one another to come up with a suitable inflation target .

As of April 2021, the RBI reported a target rate of 4%—the highest level reaching 6% while the lowest hung in around 2%. This target will remain for the five-year period from April 1, 2021, to March 31, 2026.

India's policy repo rate remained steady at 4%. This is the interest rate that the central bank lends money to the nation's commercial banks . The RBI took drastic steps to address the economic and financial issues that resulted from the COVID-19 pandemic .

The rate dropped 2% from April 2019, when the bank set it at 6%. Credit rates remained relatively high in India prior to that time, despite the central bank’s positioning, which has been limiting borrowing across the economy.

The RBI banned the use of virtual currencies by the financial agencies and banks that it regulates in 2018.

India’s Economic Growth

India's economy experienced a significant degree of growth since the early 2000s. According to the World Bank , the country implemented policies to help get more than 90 million people out of poverty between 2011 and 2015.

Despite its rapid growth rate, the Indian economy has weakened—both before and during the global COVID-19 pandemic hit. A weak financial sector and a drop in private consumption led to a drop in growth from 8.3% to 4% between 2016 and 2019. The country's economy experienced negative growth in 2020, hitting.

The World Bank estimated India's GDP to be more than $3.39 trillion as of 2022, making it the fifth-largest in the world after the U.S., China, Japan, and Germany. Real GDP will hover around 6.3% during the 2023-2024 fiscal year, which is a moderate drop from the 6.9% reported during 2022-2023.

According to the World Bank, growth will stabilize around 7%. This will likely be due to a greater concentration on fiscal and monetary policy to help boost struggling individuals and businesses , as well as greater spending on health and welfare—all of which are expected to lessen the blow of the crisis.

What Are the Powers of the Reserve Bank of India?

The Reserve Bank of India is the central bank of India. Its primary task is to administer and monitor the country's monetary and fiscal policy, The bank is also responsible for overseeing and managing the value of the Indian rupee, regulating financial markets, and supporting the economy by controlling inflation.

How Does India's Economy Rank in the World?

India has the fifth-largest economy in the world, according to the World Bank. It comes after the economies of the United States, China, Japan, and Germany. India's GDP grew to 7%, amounting to $3.39 trillion in 2022.

Why Did India Demonetize the Rs. 500 and Rs. 1000 Notes?

India demonetized the Rs. 500 and Rs. 1000 banknotes in 2016. The country's central bank announced that the move was meant to fight counterfeiting and curb terrorist-related activities. The Reserve Bank of India also said demonetization was meant to stop people from hoarding cash.

The Bottom Line

As one of the fastest-growing emerging market countries in the world, India has several unique challenges ahead that will require nimble navigation from the RBI, not to mention tackling the coronavirus pandemic that has shaken the world. Shaktikanta Das will be charged with guiding the monetary policy direction for the country as it continues to take the spotlight for GDP growth.

Sovereign Wealth Fund Institute. " Reserve Bank of India (RBI) ."

Reserve Bank of India. " Brief History ."

Reserve Bank of India. " Brief History: Hilton Young Commission ."

Reserve Bank of India. " Shri Shaktikanta Das Appointed as Governor of RBI ."

Reserve Bank of India. " Withdrawal of Legal Tender Status for ₹ 500 and ₹ 1000 Notes: RBI Notice ."

BBC News. " Why India Wiped Out 86% of Its Cash Overnight ."

The Economic Times. " Demonetisation to Kill Black Money: RBI Directors Didn't Agree ."

BRICS 2023 South Africa. " Summit Declarations ," Download "XV BRICS Summit Johannesburg II Declaration, 24 August 2023," Page 26.

Reserve Bank of India. " Reserve Bank of India Act, 1934 ," Page 85.

Reserve Bank of India. " Monetary Policy Report - April 2021 ."

Reserve Bank of India. " Monetary Policy Report – April 2019 ."

Reserve Bank of India. " Prohibition on Dealing in Virtual Currencies (VCs) ."

The World Bank. " Poverty & Equity Brief: India, South Asia, April 2020 ," Page 1.

The World Bank. " The World Bank in India: Overview ."

The World Bank. " GDP Growth (Annual %) - India ."

The World Bank. " GDP (Current US$) - India ."

The World Bank. " Indian Economy Continues to Show Resilience Amid Global Uncertainties ."

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Reserve Bank of India [UPSC Notes for Indian Economy]

The Reserve Bank of India (RBI) is India’s central bank. It controls the monetary policy concerning the national currency, the Indian rupee. The basic functions of RBI are the issuance of currency, sustaining monetary stability in India, operating the currency, and maintaining the country’s credit system. In this article, you can read all about the Reserve Bank of India, its origins, the role of RBI, its functions, mandate and all the latest updates related to the RBI, relevant for the IAS exam Indian economy segment.

Reserve Bank of India Download PDF Here

In May 2023, the Reserve Bank approved a Rs 87,416 crore dividend payout to the central government for 2022-23, nearly triple what it paid in the previous year.

The decision was taken at the 602nd meeting of the Central Board of Directors of the Reserve Bank of India held under the chairmanship of Governor Shaktikanta Das.
The board approved the transfer of Rs 87,416 crore as surplus to the central government for the accounting year 2022-23.
This is a 188% jump from the last year’s (2021-22) surplus transfer of Rs 30,307 crore.
It decided to keep the Contingency Risk Buffer (CRB) at 6 per cent.
The contingency risk buffer is a specific provision fund kept by the central bank primarily to be used during any unexpected and unforeseen contingencies.
The Bimal Jalan Committee recommended that the CRB needs to be maintained at a range of 5.5% to 6.5% of the RBI’s balance sheet.
The board also reviewed the global and domestic economic situation and associated challenges, including the impact of current global geopolitical developments.
The dividend could bring in additional revenue of around 0.2 per cent of GDP.

Provisions Regarding Transfer of Surplus by RBI:

The Reserve Bank of India Act of 1934 mandates that profits made by the central bank from its operations be sent to the Central Government.
As the manager of its finances, every year the RBI also pays a dividend to the government to help with the finances from its surplus or profit.
A technical Committee of the Reserve Bank of India headed by Y H Malegam (2013), which reviewed the adequacy of reserves and surplus distribution policy, recommended a higher transfer to the government.

How Does RBI Make Profits?

The RBI is a “full-service” central bank.
It is mandated to keep inflation in check and also manage the borrowings of the Government of India and of state governments.
It also supervises or regulates banks and non-banking finance companies and manages the currency and payment systems. While carrying out these functions, RBI makes profits.
RBI claims a management commission on handling the borrowings of state governments and the central government.
RBI also earns interest on its holdings of local rupee-denominated government bonds or securities, and while lending to banks for very short tenures, such as overnight.
RBI’s income comes from the returns it earns on its foreign currency assets, which could be in the form of bonds and treasury bills of other central banks or top-rated securities, and deposits with other central banks.

Reserve Bank of India has dismissed worries about the “exposure” of Indian banks to the Gautam Adani-led conglomerate. Click here to read more about the Adani-Hindenburg issue .

What is Final Exposure?

A bank’s counterparty exposures may cause its assets to become concentrated in the hands of a single or network of connected counterparties.

About Large Exposure Framework (LEF) Guidelines:

The Basel Committee on Banking Supervision (BCBS) released supervisory recommendations on significant exposures in January 1991, titled Monitoring and Managing Significant Credit Exposures. Know more about Basel III Norms in the link.
The recommendations on large exposures (LE) for banks were created by the RBI after deciding that Indian banks should properly embrace these standards.
With rare exclusions, the LEF applies to a bank’s exposure to all of its counterparties as well as groups of connected counterparties.
It is founded on the 2014 Basel guidelines.
Positive indications include numerous measures of sufficient capital, excellent assets, liquidity, provision coverage, and profitability.

Update on Feb 2021

On 16th February 2021, RBI announced an expert committee on primary urban cooperative banks. The chairman of the committee is NS Vishwanathan. (Get the list of committees with their purpose in the linked article for quick revision for UPSC.)
On 5th February 2021, RBI Monetary Policy (2021-22) was announced. The central bank kept the Repo Rate at 4 percent while projected the GDP growth in Fiscal Year (FY) 2022 at 10.5 percent. (Understand Cash Reserve Ration, Repo Rate and Reserve Repo Rate in the linked article.)

What is RBI?

RBI is an institution of national importance and the pillar of the surging Indian economy. It is a member of the International Monetary Fund (IMF) .

The concept of the Reserve Bank of India was based on the strategies formulated by Dr. Ambedkar in his book named “The Problem of the Rupee – Its Origin and Its Solution”.
This central banking institution was established based on the suggestions of the “Royal Commission on Indian Currency & Finance” in 1926. This commission was also known as the Hilton Young Commission.
In 1949, the Reserve Bank of India was nationalized and became a member bank of the Asian Clearing Union.
RBI regulates the credit and currency system in India.
The chief objectives of the RBI are to sustain the confidence of the public in the system, protect the interests of the depositors, and offer cost-effective banking services like cooperative banking and commercial banking to the people.

Reserve Bank of India (RBI) – Timeline

The RBI is an important tool in the development strategy of the Indian government. UPSC has asked several questions regarding RBI functions, objectives, monetary regulations, etc., especially in UPSC Prelims . One of the things to know about RBI is its timeline which is provided in the table below:

In the year 2016, the original RBI Act of 1934 was amended and that provided the statutory basis for the implementation of the flexible inflation-targeting framework.

The Preamble of Reserve Bank of India

Another thing to know about RBI is its Preamble. It describes the basic functions of the Reserve Bank as:

“… to regulate the issue of Bank Notes and keeping of reserves to secure monetary stability in India and generally to operate the currency and credit system of the country to its advantage.”

Functions of Reserve Bank of India

In this section, we discuss the functions of RBI in detail.

The Reserve Bank of India works as:

Monetary Authority

Implementation of monetary policies.
Monitoring the monetary policies
Ensuring price stability in the country considering the economic growth of the country

Also, read about the Monetary Policy Committee (MPC) and know more about this six-member committee.

Regulator and Administrator of the Financial System

The RBI determines the comprehensive parameters of banking operations.
License issuing
Liquidity of assets
Bank mergers
Branch expansion, etc.

Managing Foreign Exchange

RBI manages the FOREX Reserves of India.
It is responsible for maintaining the value of the Rupee outside the country.
It aids foreign trade payments.

Issuer of currency

The Reserve Bank of India is responsible for providing the public with a sufficient supply of currency notes and coins.
The quality of currency notes and coins is also taken care of by the RBI.
RBI is in charge of issuing and exchanging of currency and coins.
Also, the destruction of currency and coins that are not fit for circulation.

RBI’s Developmental Role

Promotional functions that support national objectives are organized by RBI that encourage rural and agricultural economic development.
The RBI will regularly issue directives to commercial banks to lend loans to small-scale industrial units.

Composition of RBI

The Reserve Bank of India is controlled by a central board of directors. The directors are appointed for a 4-year term by the Government of India in keeping with the Reserve Bank of India Act.
4 Deputy Governors
2 Finance Ministry representatives
4 directors to represent local boards headquartered in Mumbai, Kolkata, Chennai, and New Delhi
The executive head of RBI is the Governor.
The Governor is accompanied by 4 deputy governors.
The First Governor of RBI was Sir Osborne Smith and the First Indian Governor of RBI was C D Deshmukh.
The First woman Deputy Governor of RBI was K J Udeshi.
The only Prime Minister who had been the Governor of RBI was Manmohan Singh.

The current governor of RBI is Shaktikanta Das. Get the list of RBI Governors in the linked article.

Zonal Offices

RBI has four zonal offices: New Delhi for North, Chennai for South, Kolkata for East, and Mumbai for West.
The Reserve Bank of India has 19 regional offices and 11 sub-offices at present.
Reserve Bank Staff College at Chennai
College of Agricultural Banking at Pune.

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4 Reserve Bank of India: The Way Forward

Published: May 2017
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The RBI was set up to conduct monetary policy, manage public debt and foreign exchange reserves, act as the government’s banker, and support the development of markets and financial institutions. This chapter reviews how the institution has fared on these various dimensions. It begins by examining the appointment process for the Governor and the monetary policy committee. Next, it assesses the importance of an independent debt management agency and consistency between debt management and monetary policy. The connection between monetary policy and macroprudential policy is discussed next. Large foreign exchange reserves may be viewed by government at some time as a source for a national investment fund. This requires the RBI to engage with government and to define the objective of reserves management. The RBI’s actions to improve the resilience of financial markets and its involvement with social and distributional goals of directing credit towards priority activities are also evaluated.

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role and function of rbi

Checkout Roles And Functions Of RBI In Indian Economy PDF: Complete Details

May 09 2024

Role And Function Of RBI In the Indian Economy: The Reserve Bank of India (RBI), the nation's Central Bank, is in charge of governing and overseeing the operation of the Indian Banking System. The Monetary Authority of India, or RBI, was established on the Hilton Young Commission's advice. The Reserve Bank of India Act of 1934 established the RBI's legal position, and it went into operation on April 1st, 1935. Additionally, when the RBI was established, it took over the government's duties previously carried out by the Controller of Currency and the Imperial Bank of India. The RBI furthermore served as the Central Bank of Pakistan from June 1948 till India's Partition. The Reserve Bank of India's activities and responsibilities are significant for preserving India's economy. A few of its responsibilities include controlling banknote production, ensuring financial stability, and managing the nation's currency and credit system. Aspirants in search of the role and function of RBI PDF, role and function of RBI in the Indian Economy, Role and functions of Reserve Bank of India, and functions of RBI in banking can refer to this article for complete details.

Check List Of RBI Governors Of India

Banking Awareness Free PDFs

What are the Objectives Of RBI?

As the foundation of the nation's financial system, the RBI has a number of goals, which are outlined in its preamble. Following is a list of some of them:

To regulate the issue of Bank notes.
Keeping reserves with a view to securing monetary stability in India and generally operating 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.

What Are The Fundamental Objectives Of RBI?

The fundamental objectives of the Reserve Bank of India are given below.

Bank of all the other Commercial banks.
Only the authority who has a note-issuing power.
Bank to the Government of India.

What is the Structure Of RBI?

The central board of directors may have up to 21 members, including the governor and four deputy governors who are chosen by the government of India under the RBI Act, 1934 for a term of four years.

Constitution:

Official Directors

Full-time: Governor and not more than four Deputy Governors.

Non Official Directors

Nominated by the Government: Ten Directors from various fields and two government Officials.

Others: four Directors - one each from four local boards.

Role And Function Of RBI PDF

The roles and functions of RBI are curated in the form of a PDF for the reference of the candidates willing to know more about the Reserve Bank of India and its functions. Downloading the Role And Function Of RBI PDF helps you to remember the concepts easily about the Central Bank of India. The main objectives, structure of the Reserve Bank of India, main roles and functions of RBI, etc., are included in this Role And Function Of RBI PDF given below.

Role And Function Of RBI PDF Download

What are The Main Roles and Functions Of RBI?

The important roles and functions of the Reserve Bank of India are given below.

1. Monetary Authority/Management

One of the most important duties of the RBI is to design and implement monetary policy as well as to guarantee monetary stability in India. It uses the financial and credit systems to its advantage.

2. Supervision Of Financial System

Through a strong regulatory system, the RBI serves to protect the interests of depositors. maintaining thorough oversight of the bank's operations and its solvency, as well as ensuring overall financial stability through several policy decisions.

3. Regulation of Foreign Exchange Market, Government Securities Market, and Money Market

The Indian foreign exchange market is governed by the RBI. The FEMA Act of 1999's provisions are how RBI oversees and manages the foreign exchange market.

The RBI oversees the trading of securities by the federal and state governments. It has the jurisdiction to control this thanks to the RBI Act of 1934.

According to the wording of the RBI Act of 1934, the RBI has the power to regulate short-term and highly liquid debt securities.

4. Foreign Exchange Reserve Management

The responsibility for managing India's foreign exchange reserves lies on the RBI. The management of foreign exchange reserves is governed by the RBI Act of 1934's legislative regulations. According to the RBI Act of 1934, the RBI is permitted to invest these foreign exchange reserves in the following instruments. They are, Deposit money with foreign banks, Deposit with one of the commercial banks abroad, and Debt instruments.

Bank Rate - Complete Details

5. Bankers to the Central and State Governments

RBI serves as the government's banker. The RBI is in charge of receiving and disbursing funds on behalf of various government agencies. Additionally, RBI is permitted to appoint additional banks to serve as its agents and conduct banking operations on the government's behalf. The Central and State Governments' Consolidated Funds, Contingency Funds, and Public Accounts are all maintained by the RBI. As a lender to the government, RBI also extends loans to the federal, state, and territorial governments.

6. Government's Advisor

When asked to advise the government on financial and banking-related issues, RBI does so.

7. Debt Manager Of Central And State Governments

The primary goals of the debt management strategy are to reduce borrowing costs and even out the debt's maturity structure. On behalf of the federal government and state governments, RBI manages the nation's debt and issues fresh loans.

8. Banker To Banks

To maintain their SLR and CRR, banks open current accounts with the RBI. The RBI serves as a central banker for all of the individual banks and facilitates the settlement of money transfers between banks. RBI makes short-term loans and advances to banks for specific uses or in need.

9. Issuer Of Currency

To provide an adequate number of genuine and clean notes, the government and the RBI are in charge of the design, production, and overall administration of the national currency. To facilitate the movement of rupee notes and coins around the country, the Reserve Bank of India has granted permission to some bank branches to establish currency chests. (A currency chest is a storage where currency notes and rupee coins are kept on behalf of the RBI).

10. Developmental Role

The RBI's involvement in economic growth involves setting up organizations to construct financial infrastructure, ensuring credit to the economy's productive sector, and increasing access to accessible financial systems.

Important Features Of The Role And Functions Of RBI

The RBI has the authority to appoint extra directors to the board of banking business as well as to establish a variety of guidelines for bank directors.
The appointment, reappointment, and termination of the chairman, managing director, and chief executive officer of commercial banks (apart from PSBs) all require the prior consent of the RBI.
If the need arises, the RBI may, with the consent of the Central Government, replace the Commercial Banks Board of Directors.
Since the Central Government and RBI jointly regulate Public Sector Banks (PSBs), the RBI's authority over PSBs is constrained because it is unable to appoint new directors and managers, override the authority of the banks' boards of directors, or compel mergers.
Banks were required to have specific reserves in the form of CRR and SLR by RBI regulations.
The interest rate on NRI deposits, export credits (loans), and a few other types of loans is governed by the RBI. The majority of deposit and loan categories have, however, had their interest rates deregulated, thus it is now up to the banks to set these rates.
For the protection of small depositors' interests in the event of bank collapse or bankruptcy (100 percent subsidy), the RBI established the Deposit Insurance and Credit Guarantee Corporation (DICGC). All qualifying bank depositors are covered by insurance up to Rs. 5 lakhs per depositor per bank. It collects premiums from banks to offer insurance coverage. All commercial banks, including foreign bank branches and UCBs/StCBs/DCCBs, are covered by the DICGC. It's crucial to remember that it excludes interbank deposits, deposits made by foreign governments, and deposits made by central and state governments.
The RBI has permitted banks to engage in a variety of non-traditional banking operations, including the operation of mutual funds, insurance, and venture capital.

FAQs - Role And Function Of RBI In Indian Economy

Q. What are the fundamental objectives of RBI?

The fundamental objectives of the Reserve Bank of India are the b ank of all the other Commercial banks, only the authority that has a note-issuing power, and the bank to the Government of India.

Q. What is the role of RBI in monetary management?

Q. What is the role of RBI in foreign exchange reserve management?

Q. What is the role of RBI in the supervision of the financial system?

Q. What are the roles and functions of RBI in the Indian Economy?

The roles and functions of RBI in the Indian economy are to regulate the issue of Bank notes, keep reserves to secure monetary stability in India, and generally 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.

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Essay on RBI

Students are often asked to write an essay on RBI in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

Let’s take a look…

100 Words Essay on RBI

Introduction to rbi.

The Reserve Bank of India (RBI) is India’s central banking institution. Founded on April 1, 1935, it controls the monetary policy of the Indian Rupee.

Role of RBI

RBI’s main role is to maintain financial stability in India. It does this by controlling inflation and managing the country’s foreign exchange reserves.

Functions of RBI

RBI issues currency notes, controls money supply in the economy, and acts as the government’s banker. It also regulates and supervises financial institutions in India.

Importance of RBI

RBI plays a crucial role in India’s economic development. By controlling inflation and maintaining financial stability, it ensures a healthy economy.

250 Words Essay on RBI

The reserve bank of india: an overview.

The Reserve Bank of India (RBI) is the central banking institution of India, established on April 1, 1935, under the Reserve Bank of India Act. The RBI is the primary authority for India’s monetary policy and holds the pivotal role in the maintenance of the country’s economic stability and growth.

Roles and Responsibilities

The RBI’s primary role is to conduct monetary policy to maintain price stability while keeping in mind the objective of growth. It controls the issue and supply of the Indian Rupee and manages all the government accounts. The RBI is also responsible for regulating and supervising the financial system and certain types of financial institutions to ensure public confidence, protect depositors’ interests, and promote orderly and sustainable economic growth.

Impact on the Economy

The RBI plays a vital role in shaping India’s economic landscape. Through its monetary policy, it controls inflation and stabilizes the economy. It also plays a significant role in implementing the government’s economic vision by regulating the banking and non-banking financial sectors.

The RBI faces various challenges, including managing inflation, ensuring financial stability, and supporting economic growth. It also grapples with the task of striking a balance between the need for financial inclusion and the risks posed by it.

In conclusion, the RBI, as India’s central bank, plays a critical role in the nation’s economic framework. Its policies and actions significantly impact the Indian economy’s overall health and stability. Despite the challenges, it continues to strive for a balanced and sustainable economic environment.

500 Words Essay on RBI

Introduction.

The Reserve Bank of India (RBI) is the central banking institution of India, responsible for formulating the country’s monetary policy and managing its financial stability. Established on April 1, 1935, under the Reserve Bank of India Act, it has played a pivotal role in the development of the nation.

Role and Functions of RBI

The RBI’s primary function is to maintain monetary stability and ensure adequate flow of credit to productive sectors. It regulates the issue of banknotes, keeps reserves to secure monetary stability, and operates the credit and currency system of the country to its advantage. The RBI is also the regulator and supervisor of the financial system, setting broad parameters of banking operations within which the country’s banking and financial system functions.

Monetary Policy

The RBI’s monetary policy aims to maintain price stability, control inflation, and ensure adequate flow of credit to productive sectors. The Monetary Policy Committee (MPC), headed by the RBI Governor, is responsible for formulating monetary policy. The MPC uses various tools like repo rate, reverse repo rate, and cash reserve ratio to control money supply in the economy.

Foreign Exchange Management

The RBI manages the Foreign Exchange Management Act, 1999, to facilitate external trade and payment, promote orderly development and maintenance of foreign exchange market in India. It also holds and manages the foreign exchange reserves of the country, providing a comfort level to the government for meeting its foreign exchange requirements.

Regulatory and Supervisory Role

The RBI plays a crucial role in regulating and supervising commercial banks and non-banking finance companies in India. It lays down the regulatory framework for these institutions and ensures its enforcement. The RBI’s supervisory mechanism includes on-site inspections, off-site surveillance, and use of market intelligence.

Developmental Role

The RBI also has a developmental role, involving the development of the banking industry, providing institutional infrastructure, extending banking facilities to rural areas, and promoting financial inclusion. It also oversees the operation of the payment and settlement systems and ensures the availability of safe and efficient payment and settlement mechanisms.

In conclusion, the RBI’s role as the custodian of India’s monetary policy and the guardian of its financial system is integral to the country’s economic stability and growth. Its functions and responsibilities have evolved over the years to meet the changing needs of the economy, and it continues to adapt to the dynamic global financial landscape. The RBI’s effective policy-making and stringent supervision have been instrumental in maintaining the financial stability of the country.

That’s it! I hope the essay helped you.

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Monetary and Credit Policy of the Reserve Bank of India

Monetary policy is made by the Reserve Bank to manage the supply of money and in return achieving specific goals. These goals include constraining inflation, maintaining an appropriate exchange rate, generating jobs and economic growth. Monetary policy includes fluctuating interest rates that are a direct or an indirect cause of open market operations, setting reserves requirements, or trading in foreign exchange markets.

Monetary Policy

A monetary policy is the use of the central bank’s interest rate and other instruments that influence money supply in order to achieve certain set of goals those revolve around macroeconomic.
Credit policy deals with how much and at what rate, credit is advanced by the banks and these are a part of monetary policy.
Monetary policy can either be expansionary or contracting in nature.
In Expansionary policy there is an increase of the total supply of money in the economy an example for this can be in 2008-9 all over the world there were policies made to curb the global recession and slowdown.
Whereas in a contractionary policy the total money supply is decreased by tightening credit conditions.
The Expansionary policy is generally used to combat unemployment in a recession that results due to lowering interest rate, on the other hand in contractionary policy the goal is to control inflation by raising the interest rates.

Objective of Monetary Policies

The objectives for monetary policy are as follows:

Generating employment
Exchange rate stabilisation
Prices stability
Accelerating growth of economy
Balancing savings and investment

The Reserve Bank of India generally announces the monetary policy twice a year i.e. April to September and October to March as these are the slack season policy and the busy season policy respectively in accordance’s with agriculture cycle.

The Tools the central bank uses to achieve the Monetary Policy

These tools are as follows:

Intervention in the forex market
Open market operation

Moral suasion

Repo and reverse repo rates.

REPO is a transaction between two parties to sell and repurchase the same security.
Under this agreement the seller sells a specified security with an agreement to repurchase the same on a mutually decided future date and price. Similarly, the buyer purchases the same securities with an agreement to resell the same to the seller on the agreed upon date in future at an already predetermined price.
In India, RBI lends security on a short term basis to banks to the government bonds (repo). Banks undertake the responsibility to repurchase the security at a later date over, RBI charges a repo rate for the money it lends to the government.
Reverse Repo rate is when RBI borrows from the market in order to absorb excess liquidity with the sale of securities and repurchase them after a short time period. The rate at which the RBI borrows is known as reverse repo rate.
The repo or reverse repo transaction only takes place in Mumbai and securities as approved by RBI these securities includes treasury bills, central and state government securities.
The central bank uses the repo and reverse repo as an instrument for liquidity adjustment in the market.
Repo rate is also known as policy rate as it is used as a signal to the financial system and to adjust lending and borrowings operations.
Bank rate is a rate at which RBI lend long term loan to commercial banks this is a tool that RBI uses for maintaining money supply.
Any revision in bank rate is a signal for the banks to revise deposit rates as well as PLR i.e., Prime Lending Rate the rate at which bank lend money to its customers.
Bank Rate is not used any more. The last time it was used in 2003 when the 6% Bank Rate was fixed. In 2011, the bank rate was replaced with Marginal standing facility.
Bank rate is nowadays aligned with Marginal Standing Facility (MSF) rate which is linked to the Repo rate.

Marginal Standing Facilities

In 2011 RBI introduced the MSF as a window through which commercial banks can borrow from the Central Bank at a rate i.e. 1% more than the Repo Rate. It is a very short term borrowing scheme for commercial banks by this Banks borrow funds through the Reserve Bank during severe cash shortage or acute shortage of liquidity. These were introduced by the Reverse Bank of India to reduce volatility in the overnight lending rates and to enable smooth monetary transmission in the financial system.

Liquidity Adjustment Facilities

This is a tool used in monetary policy that allows banks to borrow money through repurchase agreements. LAF are used to aid banks in resolving any short-term cash shortages during periods of economic instability. It is enabled through repo rate and reverse repo rate.

Reserve Requirement

The reserve requirement is a bank regulation that sets the minimum reserves each bank must hold as a part of the deposits at any given time, these reserves are designed to satisfy various needs. Some of them include providing loans to the government (SLR) kept with themselves or cash that is kept with the RBI.

Statutory liquidity ratio (SLR)

Banks are required to invest a certain percentage of their deposits in specified financial securities that includes securities set forth by the Central Government or State Government. The deposited percentage is known as SLR i.e. Statutory Liquidity Rate. The money is invested in government approved securities (bonds).

Cash reserve ratio

There is a specified amount that is held to be held by the bank either in form of cash or cash equivalents, and can be stored in bank vaults or with the Reserve Bank of India. The aim of CRR is to ensure that banks do not run out of cash to meet the payment demands of their depositors it is also used for controlling money supply in an economy. Commercial banks have to hold only some specified part of the total deposits as reserve this is called Fractional Reserve Banking.

Open market operations of RBI

OMSs of the RBI is described as outright purchase sale of government securities in the open market i.e, banks and financial institutions by the RBI in order to influence the volume of money and credit in the economy. While Purchases of government securities result in the injection of money into the market and hence it leads to credit expansion.

Moral persuasion is a measure used by the Central bank to influence banks into adhering the said policy. The Measures taken by the RBI are as follows closed door meeting with bank directors, increased severity of inspections, discussions on appeals to community spirit etc.

Importance of Monetary Policy

To control inflationary pressure
To Achieve price stability
To bridge balance of payment deficit
Interest rate policy
To create banking and financial institutions
Debt Management

Frequently Asked Questions

What is rbi monetary policy.

Monetary policy is the policy laid down by the RBI and involves the Management of money supply and interest rates.

What are the Repo and Reverse Repo Rate?

The Repo rate is the rate at which RBI lens money to the commercial banks whereas the Reverse Repo Rate is the rate at which the Commercial Banks lark their money at the RBI.

What are the current rates?

Edited by Shikhar Shrivastava

Approved & Published – Sakshi Raje

Essay on Regional Rural Banks (RRBs) of India

In this essay we will discuss about Regional Rural Banks (RRBs) of India. After reading this essay you will learn about: 1. Introduction to Regional Rural Banks of India 2. Progress of Regional Rural Banks in India 3. Evaluation 4. Functional Superiority 5. Unsatisfactory Performance 6. Restructuring 7. Recapitalisation 8. Suggestions 9. Reforms 10. Consolidation 11. Amalgamation.

Essay on the Amalgamation of Regional Rural Banks

Essay # 1. Introduction to Regional Rural Banks of India:

Rural banking institutions are playing a very important role for all-round development of rural areas of the country. In order to support the rural banking sector in recent years, Regional Rural Banks have been set up all over the country with the objective of meeting the credit needs of the most under privileged sections of the society.

These Regional Rural Banks (RRBs) have been receiving a high degree of importance and attention in the rural credit system.

ADVERTISEMENTS:

Considering the gross absence of banking facilities in the rural areas of the country, the Reserve Bank of India in consultation with the Central Government, State Governments and some major nationalized sponsored banks had set up some Regional Rural Banks in the late 1970s with a view to elevate the economic status of the rural poor as well as to inculcate a habit of saving among the rural masses.

As per the recommendations of the Working Group on Rural Banks, the regional rural banks were established in 1975 for supplementing the commercial banks and co-operatives in supplying rural credit. The main objective of regional rural banks in India is to advance credit and other facilities, especially to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs in order to develop agriculture, trade, commerce, industry and other usual productive activities in different rural areas of the country.

At the initial stage, five regional rural banks were established on October 2, 1975 at Gorakhpur and Moradabad in Uttar Pradesh, Jaipur in Rajasthan, Bhiwani in Haryana and Malda in West Bengal under the sponsorship of State Bank of India, the Syndicate Bank, United Commercial Bank, Punjab National Bank and United Bank of India respectively.

All these five RRBs have an authorised capital of Rs 1 crore and paid-up capital of Rs 25 lakh. The share capital of RRB is subscribed in the following manner—as the Central Government—50 per cent, the State Government concerned—15 per cent and the sponsoring commercial bank—35 per cent.

The regional rural banks are maintaining its special charter it their of operation is very much limited to a definite region, grant direct loan to rural people at concessional rates and receive subsidies and concessions from the Reserve Bank and the sponsoring bank.

The concessions granted by the Reserve Bank of India are:

(a) Allowing RRBs to maintain cash reserve ratio at 3 per cent and statutory liquidity ratio at 25 per cent; and

(b) Providing refinance facilities to RRBs through NABARD.

Essay # 2. Progress of Regional Rural Banks in India :

In the mean time, the regional rural banks have extended their network throughout the country to a considerable extent. Initially, there were 196 regional rural banks operating in 28 states with nearly 14,700 branches. Till June 1996, these RRBs have been lending annually nearly Rs 1500 crore to the rural people and more than 90 per cent of the loan has been advanced to weaker sections.

As on September, 1990, the RRBs had advanced jointly to the tune of Rs 3,560 crore in the form of short-term crop loans, term loans for agricultural activities, for rural artisans, cottage and village industries, retail trade, self-employment projects and consumption loans etc.

Among all the states, Uttar Pradesh is the state where larger number of RRB branches has already been opened. Recently, after amalgamation, the number of RRBs has been reduced to 92.

During the last 30 years, RRBs have been participating actively in various programmes designed for providing credit assistance to identified beneficiaries included under the new 20 Point Programme, IRDP and other programmes designed for scheduled castes and tribes. RRBs are also advancing loans to weaker sections and physically handicapped persons under differential rate of industrial (DIR) schemes.

At the end of June 2014, there were 92 amalgamated RRBs, covering 518 districts of the country with a network of 18,291 branches. Out of all these branches of RRBs, 4,042 are the rural branches as on June 30, 2014 which constitute about 21.4 per cent of the total branches of RRBs.

The loans and advances stood at Rs 7,852.7 crore as at the end of September 1996. Again, Rs 15,423 crore were mobilised as deposits by RRBs at the end of September 1996. Consequent upon the permission of the Reserve Bank of India to determine their own lending rate with effect from 26 August 1996, most of the RRBs have been charging interest rates on their loans varying between 13.5 to 19.5 per cent per annum.

In recent years, under the softer interest regime, interest rates on loans advanced by RRBs have also declined considerably. Again, total amount of credit advanced to the agriculture by the RRBs increased considerably from Rs 6,069.79 crore in 2002-03 to Rs 43,968 crore in 2010-11.

As on March 31, 2002 total outstanding deposits of RRBs stood at Rs 44,327.81 crore and total outstanding advances stood at Rs 18,586.97 crore. Out of the 196 RRBs, 170 RRBs are making profit in recent years after introducing measures under banking reforms. Chalapathi Rao Committee on Regional Rural Banks has also recommended privatisation of profit making RRBs in a phased manner.

In order to make Financial Inclusion Plan of the government effective and to expand the penetration of banking network in unbanked and under-banked rural areas, regional rural banks (RRBs) also worked out its branch expansion plan for 2011-12 and 2012-13 with 10 per cent increase over the previous year.

Accordingly, RRBs could open 913 branches in 2011-12 against its target of opening 1247 branches. This figure compares favorably with that of opening of 521 branches in 2010-11 and 299 branches in 2009-10. For 2012-13, a target of opening 1845 new branches has also been set.

Essay # 3. Evaluation of Regional Rural Banks :

Regional Rural Banks have made commendable progress in advancing various types of loan to the weaker and under privileged section of the rural society. As per our recent RBI report, “The RRBs have fared well in achieving the objective of providing access to weaker sections of the society to institutional credit but the recovery position on the whole is not satisfactory.”

The working of RRBs was evaluated by the Narasimham Committee on the Financial System. Although RRBs were set up in order to provide a low cost alternative to the operation of commercial bank branches, particularly in the rural areas but the functioning of RRBs was not up to the mark.

The Committee mentioned three basic problems of RRBs:

(a) RRBs have a low earning capacity due to so many restrictions placed on the business undertaken by these banks;

(b) With the recent award of a tribunal the wages and salary scales of RRBs would be similar to that of commercial banks and thus the very idea of low cost alternative to the operation of commercial bank has been nullified; and

(c) The very area of operations of RRBs is also being utilised by the sponsoring banks by running their own rural branches leading to certain anomalies like duplication of services and expenditures on control and administration.

Thus the Narasimham Committee is of the opinion that the viability of RRBs should be improved without sacrificing the basic objective. The Government should also try to evolve a rural banking structure and base of RRBs with adequate financial strength and management and organisational skills of the commercial banks.

But there are some inherent factors which are very much responsible for this non-viable nature of RRBs. These include:

(i) RRBs can set up its branches mostly in unbalanced and under-banked areas;

(ii) The lending operations of RRBs are very much confined to target group composed of small borrowers of rural and semi-urban areas; and

(iii) The rate of interest charged by RRBs on their loan are comparatively lower.

The Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAF1CARD) has also indicated the same above mentioned reasons responsible for growing non-viability of RRBs.

Essay # 4. Functional Superiority of Regional Rural Banks :

Regional Rural Banks have also established functional superiority over other commercial banks of the country. This superiority of RRBs has been brought out by the share of deposits contributed by these branch offices of RRBs in different states. The share of deposits of these branches of RRBs in December, 1991 in a state like Uttar Pradesh was 25.7 per cent in comparison to that of only 12.4 per cent for other Scheduled Commercial Banks.

This achievement is noteworthy if we consider that the number of branches of RRBs (1,193) was even lower than that of other scheduled commercial banks (1,361). Moreover, the share of deposits of RRBs in Haryana was also higher than other scheduled commercial banks which had comparatively double the number of branches.

Another important matter that has also been noticed is that most of the branches of RRBs are opened in unbanked centres and thus the deposits mobilised by them are fresh deposits and are not diverted from the deposits per branch of RRBs established before 1980 is uniformly higher in almost all the states of the country. In respect of credit operations, RRBs were successful in identifying the target groups and also in meeting their credit requirements.

Essay # 5. Unsatisfactory Performance of Regional Rural Banks :

The Regional Rural Banks (RRBs) have been experiencing an unsatisfactory performance since last few years. Therefore, the RRBs have now become a serious problem for the Indian Banking sector. They are now far from fulfilling purpose for which they were set up some two decades ago.

These RRBs have been incurring heavy losses year after year. In 1990-91, the RRBs incurred a total loss of Rs 92.87 crore, followed by Rs 258.66 crore during 1991-92. In 1993-94, 173 out of the country’s 196 RRBs incurred losses to the tune of Rs 310 crore.

As per the latest data available with the National Bank for Agriculture and Rural Development (NABARD), the total accumulated losses of all Regional Rural Banks, operating in the country are estimated at Rs 2,176 crore as on 31st March, 1996.

It is, therefore, not surprising that these banks, established for the purpose of providing an impetus to rural growth have dismally failed to boost agro-based rural economy. One of the major contributory factors responsible for the mounting losses suffered by the RRBs has been very high overheads; in which a sizeable component is salaries. Employees of RRBs earlier received lower scales of salaries compared to their counterparts in the scheduled nationalized banks.

However, in 1990, with implementation of the National Industrial Tribunal (NIT) Award in case of the employees of the RRBs, the structure of their emoluments was brought at par with that of the staff of the scheduled commercial banks.

The NIT award has enhanced the salary-allowance bill of RRBs by 35 per cent during the last three years, apart from increase in its other concomitant expenditure. Moreover, it also placed on the banks shoulder an arrear burden of Rs 225 crore.

While the annual wage liability of the RRBs has increased substantially, their income was declining rapidly on account of inadequate loan recoveries and scanty profits. Only 23 of the 196 RRBs were making a profit and the rest were all running losses. The aggregate level of loss at the end of March 1994 was Rs 906 crore.

Over the last three years, the credit-deposit ratio of RRBs had also declined from 85.6 in 1989-90 to as low as 68.7 in 1991-92. Further, the increasing number of defaulters has hampered the recycling of cash. In 1992, the loan over dues stood at Rs 1,314 crore.

Due to the constant efforts, at recapitalizing RRBs, at the end of March, 2000, 158 RRBs are posting operating profits. Out of these, 48 RRBs have been able to wipe out their accumulated losses. In view of the importance of RRBs in rural financing, the government has decided to continue with this programme of strengthening the RRBs in the coming years.

Essay # 6. Restructuring of Regional Rural Banks :

The present situation is forcing the bank to initiate corrective measures to put them back in stream. The government of India has undertaken restructuring of the RRBs. Towards that end their issue capital has been raised from Rs 25 lakh to Rs one crore in the case of 140 banks and Rs 50 lakh in the remaining cases. A provision of Rs 5 crore for the purpose was made by the government during 1993-94.

The issue capital of the RRBs is shared by the Central Government, all the state governments and various sponsoring banks. At the end of March, 1992 the total credit support extended to the banks amounted to Rs 4090.86 crore. As on the same date the banks had mobilised Rs 5868 crore from 345 lakh accounts.During. 1991-92, the RRBs disbursed only Rs 1,107 crore among 23 lakh rural people drawn from the weaker sections of the society.

To revitalize the banks a sum of Rs 402 crore was released in 1991-92 by the state owned National Bank for Agriculture and Rural Development (NABARD). The weak condition of RRBs has been reflected from the fact that many have completely wiped out their equity and reserves and in some, the losses are even eating into deposits.

This is an unsustainable situation and long term structural measures are necessary if these banks are to be rehabilitated.

Attributing high establishment and operational cost, low level of business and restricted area of operation as the main causes for the loss, the RBI had initiated certain measures to enable RRBs to diversify their operations.

In line with the government’s focused strategy for improving the viability of the Regional Rural Banks in the country as many as 136 RRBs have been provided financial support to the tune of Rs 573 crore for their comprehensive revamping. By according priority to revival of viable RRBs instead of tackling the problem in a generalized manner, it is expected to bring down considerably the losses of RRBs and make them stand on their own feet.

The RRBs have been advised to prepare bank specific development action plans to enable them to adopt a systematic approach for their turn around. Besides, the RRBs have been permitted by the RBI to deploy a part of their surplus non-statutory liquidity Ratio fund in the credit portfolio of their sponsor banks.

The RBI has fully deregulated the interest rates that can be charged to the ultimate borrowers by the RRBs. Now there is even a move to merge all the 92 RRBs to form a National Rural Bank of India, for which NABARD would contribute 76 per cent of the equity.

Essay # 7. Recapitalisation of Regional Rural Banks to Improve their CRAR :

RRBs have been playing an important role in credit delivery in rural areas. In order to bring the capital to risk-weighted assets ratio (CRAR) or RRBs up to at least 9 per cent, Dr. K.C. Chakraborty Committee inter alia recommended recapitalization support to the extent of Rs 2,200 crore to 40 RRBs in 21 states.

In pursuant to the recommendation of the committee, recapitalization amount is to be shared by the stakeholders in proportion to their shareholding in RRBs, i.e., 50 per cent by central government, 15 per cent by concerned state government, and 35, per cent by the concerned sponsor banks.

Accordingly, the central government share works out to Rs 1,100 crore. The recapitalisation process, which started in 2010-11 was to be completed by 2011-12. Although the central government released about Rs 468.9 crore during 2010-11 and 2011-12 to 21 RRBs, but the process to recapitalisation could not be completed in 2011-12 as all the related state governments could not release their share towards recapitalisation.

Therefore, the recapitalisation scheme has been extended up to March 2014. In the mean time, the budget for 2012-13 has made provision for Rs 200 crore for this purpose and the same was released in time. Thus till 31st December 2012, a total sum of Rs 668.9 crore had been released by the government to 27 RRBs for its recapitalisation.

Essay # 8. Suggestions to Raise the Degree of Viability of Regional Rural Banks :

In order to raise the degree of viability of regional rural banks, some suggestions may be advanced in the following manner:

1. As suggested by CRAFICARD, the areas of operation of a RRB branch never offer sufficient potential for business and thus to attain viability this branches may cover the neighbouring districts. But the chances of extending this area of operation are very remote due to the introduction of the programme of Service Area Approach.

2. Within the service area, the RRBs must be allowed to finance the project of non-target groups after meeting the credit needs of target groups. Although CRAFICARD and Kelkar Committee did not favour the idea of RRBs financing non-target groups but recommended to lend to those public bodies established for the benefit and welfare of weaker sections.

3. In order to increase the resource base, the RRBs may be permitted to open their branches in the semi-urban and urban areas having larger business potential. Such branches will help the RRBs to mobilise the much needed resources required to meet rural obligations.

4. In order to diversify their deposit base, RRBs may be permitted to tap NRI deposits in those areas when they have such potential.

5. District administration should help the RRBs to recover the overdue loan amounts as the present recovery percentage remains as low as 23 per cent.

Essay # 9. Reforms of Regional Rural Banks :

In line with the reform of the banking system, Expert Groups were constituted to examine the major issue concerning managerial and financial restructuring of Regional Rural Banks (RRBs) to devise future course of action in their further reorganization, and to study the role which could be assigned to self-help groups and NGOs in improving the rural credit delivery system.

To ensure that the restructuring of RRBs is sustained and durable, prudential norms were introduced, in 1996 along the lines of those for commercial banks. RRBs will be required to adopt new income recognition norms and exposure limits for borrowers. Provisioning norms were introduced from the year 1996-97.

Essay # 10. Consolidation of Regional Rural Banks :

The Government has taken the initiative of consolidating Regional Rural Banks (RRBs) sponsored by the same bank within a state. This would widen the sphere and area of banks’ operation and strengthen their functioning with a view to increase the flow of credit in the rural areas.

In terms of Section 23 of the Regional Rural Banks Act, 1976, the sponsor bank NABARD and the State Governments concerned have already given their concurrence for the proposed amalgamation of 14 RRBs.

Thus the process of merger in 196 RRBs, spread over 14,496 branches in 518 districts in India has quietly begun. A host of PSBs have taken a decision to merge some of their RRBs on a state-wise basis. The Government took systematic merger plan of RRBs on state-wise basis and one RRB started to function in each state province on 31st August, 2005 and as a result, the number of Regional Rural Banks (RRBs) had reduced to 92 from 196 due to amalgamation of RRBs sponsored by the same bank in a state.

The number of loss making RRBs reduced to 15 in 2006-07 from 22 in 2005-06. Of these seven have registered profit during the first half of 2007-08 and the remaining four posted profit by the end of 2007-08. The performance of RRBs has improved considerably as the percentage of their gross NPAs and net NPAs has reduced.

The net Worth of RRBs as a whole increased to Rs 4,545.86 crore as on March 31, 2007 from Rs 3,466.25 crore as on March 31, 2005.

Essay # 11. Amalgamation of Regional Rural Banks :

In order to improve the condition of RRBs and also to minimise overhead expenses and also to optimize the use of technology in RRBs, the government has initiated amalgamation of geographically contiguous RRBs in a State.

As a result of this step, the capital base and area of operation of amalgamated RRBs will be enhanced in order to serve their area better with absorption of technology and improved management. Till 1 January 2013, 22 RRBs had already been amalgamated into 9 RRBs.

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The Reserve Bank of India, abbreviated as RBI, is India's central bank and regulatory body responsible for regulation of the Indian banking system. Owned by the Ministry of Finance, Government of India, it is responsible for the control, issue and maintaining supply of the Indian rupee.It also manages the country's main payment systems and works to promote its economic development.
4 Reserve Bank of India: The Way Forward
The Reserve Bank of India (RBI) was set up on 1 April 1935, and over the years its monetary policy objectives have been to maintain price stability and ensure an adequate supply of credit to assist the process of economic growth. 1 It is entrusted with the management of foreign exchange reserves, and its founding statute requires it to be the manager of the public debt of the Government of ...
PDF Role of Reserve Bank of India in Indian Economy
The Reserve Bank of India was established as a private share holder‟s bank. The Central office of Reserve Bank of India was initially located in Calcutta which was later shifted to Bombay. The Reserve Bank of India issued first of its currency notes in January 1938 in denomination of Rs.5 and Rs.10 and later in
Role of Reserve Bank
Basic Functions Of The RBI. The preamble of the Reserve Bank of India Act, 1934 states that the objectives of the RBI are "to regulate the issue of bank notes and the 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.".
PDF A Critical Analysis on Function & Role of Reserve Bank of India ...
Role of Reserve Bank of India in Economic Development of India. Reserve Bank of India has 7 Primary functions has an objective of managing a particular part of the economy. 1. Issuer of Currency: - The RBI has the sole right to issue news currency notes and coins, exchanges or destroy currency not fit for circulation.
Notes on The Role of RBI in The Indian Economy
The Reserve Bank of India (RBI) is in charge of the country's currency design, manufacture, distribution, and overall management. It aims to ensure that the state has a sufficient supply of clean and legitimate notes. Its goal is to lower the risk of counterfeiting. Counterfeit notes are frequently used for terrorist financing, which has a ...
Role And Functions Of RBI Indian Economy PDF What Are Meaning
The important roles and functions of the Reserve Bank of India are given below. 1. Monetary Authority/Management. One of the most important duties of the RBI is to design and implement monetary policy as well as to guarantee monetary stability in India. It uses the financial and credit systems to its advantage.
PDF Y V Reddy: Autonomy of the central bank
can be explored. After some deliberation, the subject "Autonomy of the Central Bank: Changing Contours in India" has been chosen. During the ten years of economic reform, Reserve Bank of India (RBI) has emerged as a respected and significant institution in public policy and its changing role as a central bank deserves to be appreciated.
(PDF) IMPACT OF RBI MONETARY POLICY ON INDIAN ECONOMY ...
the Reserve Bank of India Act, 1934 spells out the objectives of the Reserve Bank as "to con trol . the issue of banking notes and the k eeping of reserve with review to securing mon etary ...
Reserve Bank of India
PREAMBLE. "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 ...
Central Bank of India: Function & Roles
Example: The Reserve Bank of India was set up in 1935, when India was still a British colony. Essay Prompt 2: Write an essay of about two paragraphs that describes the relationship between the ...
Main Answer Writing Practice
GS Paper 1 GS Paper 2 GS Paper 3 GS Paper 4 Essay Revision Tests. Filter By : Economy. Science & Technology. Bio-diversity & Environment. Internal Security. Disaster Management. Q. Discuss the role of the Reserve Bank of India in implementing banking sector reforms in India, highlighting its impact on commercial banks and the economy. (250 Words)
Essay on RBI
500 Words Essay on RBI Introduction. The Reserve Bank of India (RBI) is the central banking institution of India, responsible for formulating the country's monetary policy and managing its financial stability. Established on April 1, 1935, under the Reserve Bank of India Act, it has played a pivotal role in the development of the nation.
An Overview Of Credit Control Policy of RBI
Conclusion. In the Indian economy, the RBI's role in credit control is crucial. The Reserve Bank of India controls the flow of credit in our economy in order to keep inflation and economic growth in check. Credit changes can cause market instability, so credit control policies must be carefully planned before being implemented.
Reserve Bank of India
1) Reserve Bank of India (RBI) has been making efforts for promoting awareness on 'Know your Banknotes 'and 'Clean Note Policy' among the people. To create more awareness and general interest about the concept at an early stage of childhood, RBI, Mumbai proposes to conduct an essay competition relating to Currency Management for school ...
Monetary and Credit Policy of the Reserve Bank of India
March 13, 2020. Monetary policy is made by the Reserve Bank to manage the supply of money and in return achieving specific goals. These goals include constraining inflation, maintaining an appropriate exchange rate, generating jobs and economic growth. Monetary policy includes fluctuating interest rates that are a direct or an indirect cause of ...
Role of Central Bank With Reference To Indian Scenario
Role of Central Bank with reference to Indian scenario - Free download as PDF File (.pdf), Text File (.txt) or read online for free. The document is a project report on the role of the Reserve Bank of India (RBI) submitted by a student for their class. It begins by thanking various parties for allowing the project and providing guidance. It then includes an index outlining the topics that will ...
Essay on Regional Rural Banks (RRBs) of India
Considering the gross absence of banking facilities in the rural areas of the country, the Reserve Bank of India in consultation with the Central Government, State Governments and some major nationalized sponsored banks had set up some Regional Rural Banks in the late 1970s with a view to elevate the economic status of the rural poor as well as to inculcate a habit of saving among the rural ...
Short essay on the Reserve Bank of India
[dk_lang lang="hi"]The attempts to establish a Central Bank in India took a definite shape, when in 1927 a bill was introduced in the Indian Legislative Assembly, to establish a gold standard currency for Bri (...)[/dk_lang] [dk_lang lang="bn"]ভারতে একটি কেন্দ্রীয় ব্যাংক প্রতিষ্ঠার প্রচেষ্টা একটি ...
The Philippines' $35 Billion Military Modernization Plan, Explained
The 2024 budget projected a fiscal deficit of 5 percent of GDP, which was obviously based on the expectation that, led by the U.S. Federal Reserve, central banks would start easing back on ...