Notes on the Reserve Bank of India

This article provides notes on the Reserve Bank of India (RBI).

The Reserve Bank of India is the central Bank of the country entrusted with the task of monetary stability, the management of currency and the supervision of the financial as well as the payment system.

In a simple manner we can understand that the Reserve Bank of India controls all banks functioning in India and Reserve Bank is the Bank of all Banking Companies working in India. For the purpose of law it is informed that the reserve Bank of India was constituted during British Raj in India on 1st April 1934.

The Reserve Bank of India was setup on the basis of the recommendations of the Hilton Young Commission. The Reserve Bank of India Act 1934 provides the statutory basis of the functioning of the Bank, which commenced operations on 1st April 1935.

It was constituted to:

1. Regulate the issue of Bank Notes,

2. Maintain reserves with a view to securing monetary stability, and

3. To operate the credit and currency system of the country to its advantage.

The preamble of Reserve Bank of India describes the basic functions of the Reserve Bank of India:

“To regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary security in India and generally to operate the currency and credit system of the country to its advantage”.

Financial Supervision:

The Reserve Bank of India performs the functions under the guidance of the Board of Financial Supervision in brief known as (BFS). The board was constituted in 1994 as a committee of the central board of directors of the Reserve Bank of India.

Objectives of BFS:

Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial Banks, Financial Institutions and Non-Banking financial companies.

Functions:

Some of the functions of BFS include:

1. Restructuring of the system of Bank Inspections,

2. Introduction of off-site surveillance,

3. Strengthening of the role of statutory Auditors, and

4. Strengthening of the internal defenses of supervised institutions.

So far legal aspect is concerned the most important for RBI is Banking Act.

Governing Banking operations like:

1. Formulates, Implements and monitors the monetary policy.

2. Maintains price stability and ensuring adequate flow of credit to productive sectors.

3. Prescribes broad parameters of banking operations within which the country’s banking and financial system functions.

4. Maintains public confidence in the system, protect depositors interest and provide cost effective banking services to the public.

RBI Also Performs Certain Related Functions:

It is a Banker to the Government, Performs Merchant Banking functions for the central and the state governments; also acts as their Banker.

It is also a Banker to Banks.

Practical Bank Services:

The Role of a Bank starts with Opening an Account of the customer. Once the account has been opened a customer is free to avail the services of banking companies. It is therefore important to know how the account is opened in a Bank.