The overall economic efficiency and the stability of a nation are dependent on the payment and settlement system prevailing in that country. As a result, the various regulators in India, including the central bank, have been regularly and consistently revising their operating models and policies to ensure and carry on the development of payment systems at the national level. These regulators are required to carefully safeguard the sanctity of payment systems, generally from systematic risks, the risk of fraud, etc. The responsibility of a central bank of any given country is to ensure and carry on the development of payment systems at the national level. In India, this responsibility is vested with the Reserve Bank of India (RBI).
Establishment of the RBI
The Reserve Bank of India (RBI) was first established in 1935 according to the Reserve Bank of India Act of 1934. Situated in Mumbai, the RBI is wholly owned and operated by the Indian Government. The operations of the RBI are governed by the Central Board of Directors which comprises of 21 members appointed by the Government of India by the Act. The Central Board of Directors consists of the Official Directors and the Non-Official Directors. The Official Directors would include the Governors appointed for four years with an addition of 4 Deputy Governors. The Non-Official Directors comprise of 10 Directors elected from multiple fields along with 2 Government Officials.
Chain of Command
The following is the chain of command among the Central Board of Directors of the RBI according to their ranks.
- Governor
- Deputy Governor
- Executive Directors
- Principal Chief General Manager
- Chief General Managers
- General Managers
- Deputy General Managers
- Assistant General Managers
- Managers
- Assistant Managers
- Support Staff
Objectives of the RBI
The primary goals of the RBI according to the Preamble of the same are as follows.
- To regulate the issue of Banknotes.
- To secure monetary stability in the country.
- To meet the economic challenges by modernising the monetary policy framework.
The primary focus of the RBI is to supervise and undertake initiatives on behalf of the financial sector which consists of financial institutions, commercial banks, non-banking financial companies. A few critical efforts of the RBI are to restructure bank inspections and fortifying the role of statutory auditors in the banking system.
Functions of the RBI
Supervisory and Regulatory Authority
- To set specific parameters for the banks in the country. This would include financial operations within which the banking and financial systems are to function.
- To protect the interests of every investor and offer economic and cost-efficient banking services to the public.
Monetary Authority
- To formulate and implement the monetary policies of the country.
- To maintain stability in the prices across all the sectors along with the objective of growth.
Currency Authority
- To issue, exchange or destroy currency that is not fit for circulation.
- To provide adequate currency notes and coins of the standard quality to the public.
Foreign Exchange Management
- To oversee the Foreign Exchange Management Act, 1999.
- To facilitate the external trade and development of the foreign exchange market in the country.
Other Functions
- To promote and perform promotional functions to support national banking and other financial objectives.
- To offer banking solutions to the Central and State Governments.
- To act as a banker for the Central and State Governments.
- To be the Chief Banker to every bank across the country and maintain all the banking accounts of every scheduled bank.
FAQs
What is the Reserve Bank of India (RBI)?
The Reserve Bank of India is the central banking institution of India, established on April 1, 1935, under the Reserve Bank of India Act, 1934. It regulates the monetary policy of the Indian rupee, manages the country’s foreign exchange and gold reserves, issues currency, and oversees the banking system’s functioning.
Who governs the RBI?
The RBI is governed by a central board of directors headed by a Governor. The Governor is appointed by the Government of India. The board includes representatives from various fields, including economics, finance, and industry, along with government nominees.
How does the RBI regulate banks?
The RBI regulates banks and financial institutions through various measures such as licensing, inspection, and supervision. It sets guidelines and regulations related to capital adequacy, liquidity, risk management, and corporate governance. It also has the authority to issue directives and take corrective actions to ensure the stability and soundness of the banking system.
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