Reserve Bank of India (RBI)
The Reserve Bank of India (RBI) is
India’s central bank, also known as the banker’s bank.
The RBI controls the monetary and other banking policies of the Indian
government.
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| RBI |
Which date was the RBI established?
The Reserve Bank of India (RBI) was
established on April 1, 1935, in accordance with the Reserve Bank
of India Act, 1934. The Reserve Bank is permanently situated in Mumbai since
1937.
Establishment of Reserve Bank of India
The Reserve Bank is fully owned and operated by the Government of India.
The Preamble of the Reserve Bank of India describes the basic functions of
the Reserve Bank as:
·
Regulating the issue of
Banknotes
·
Securing monetary stability
in India
·
Modernising the
monetary policy framework to meet economic challenges
·
The Reserve Bank’s operations are governed by a central
board of directors, RBI is on the whole operated with a 21-member central board
of directors appointed by the Government of India in accordance with the
Reserve Bank of India Act.
The Central board of directors comprise of:
·
Official Directors – The
governor who is appointed/nominated for a period of four years along with four Deputy Governor
·
Non-Official Directors – Ten
Directors from various fields and two government Official
Organisation Structure
Objectives
The primary objectives of RBI are to supervise and undertake initiatives
for the financial sector consisting of commercial banks, financial institutions
and non-banking financial companies (NBFCs).
Some key initiatives are:
·
Restructuring bank
inspections
·
Fortifying the role of
statutory auditors in the banking system
Legal Framework
The Reserve Bank of India comes under the
purview of the following Acts:
·
Reserve Bank of India Act, 1934
·
Public Debt Act, 1944
·
Government Securities Regulations, 2007
·
Banking Regulation Act, 1949
·
Foreign Exchange Management Act, 1999
·
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002
·
Credit Information Companies(Regulation) Act, 2005
·
Payment and Settlement Systems Act, 2007
Major Functions of RBI
Monetary Authority
·
Formulating and implementing
the national monetary policy.
·
Maintaining price stability
across all sectors while also keeping the objective of growth.
Regulatory and Supervisory
·
Set parameters for banks and
financial operations within which banking and financial systems function.
·
Protect investors interest
and provide economic and cost-effective banking to the public.
Foreign Exchange Management
·
Oversees the Foreign
Exchange Management Act, 1999.
·
Facilitate external trade
and development of foreign exchange market in India.
Currency Issuer
·
Issues, exchanges or
destroys currency and not fit for circulation.
·
Provides the public
adequately with currency notes and coins and in good quality.
Developmental
role
·
Promotes and performs
promotional functions to support national banking and financial objectives.
Related
Functions
·
Provides banking solutions
to the central and the state governments and also acts as their banker.
·
Chief Banker to all banks:
maintains banking accounts of all scheduled banks.
RBI Policies
Repo
Rate
Repo or
repurchase rate is the benchmark interest rate at which the RBI lends money to
all other banks for a short-term. When the repo rate increases, borrowing from
RBI becomes more expensive and hence customers or the public bear the outcome
of high-interest rates.
Reverse
Repo Rate (RRR)
Reverse Repo
rate is the short-term borrowing rate at which RBI borrows money from other
banks. The Reserve Bank of India uses this method to reduce inflation when
there is excess money in the banking system.
Cash
Reserve Ratio (CRR)
Cash Reserve
Ratio is the particular share of any bank’s total deposit that is mandatory and
to be maintained with the Reserve Bank of India in the form of liquid cash.
Statutory
liquidity ratio (SLR)
Leaving aside
the cash reserve ratio, banks are required to maintain liquid assets in the
form of gold and approved securities. A higher SLR disables the banks to grant
more loans.
Payment System Initiatives
·
The Reserve
Bank has taken many steps towards initiating and updating secure and sustainable
methods of payment systems in India to meet public requirements.
·
Currently,
payment methods in India consist of paper-based instruments, electronic
instruments and other instruments, such as pre-paid system (e-wallets), mobile
internet banking, ATM-based transactions, Point-of-sale terminals and online
transactions.
Paper-based Payments
·
Use of
paper-based instruments such as cheques and demand drafts accounts for nearly
60% of the volume of total non-cash transactions in India. These forms of
payments have been steadily decreasing over a period of time due to the electronic
modes of payments gaining popularity due to the comparative convenience, safety
and overall efficiency.
·
Magnetic Ink
Character Recognition (MICR) technology was introduced by RBI in the
paper-based payment method for speeding up and bringing in efficiency in the
processing of cheques.
·
A separate
clearing system for paper-based payment method was introduced for clearing
cheques of high-value ranging from rupees one lakh and above. Also, the
introduction of cheque truncation (CTS) system restricts the physical movement
of cheques and utilises images for enhanced secure payment processing.
Electronic Payments
The initiatives
taken by the Reserve Bank in the domain of electronic payment systems are
immense and vast. The types of electronic forms of payment by the RBI are as
follows:
·
Electronic Clearing Service (ECS) – This enables customer bank
accounts to be credited with a specified value and payment on a set date. This
makes EMIs, or other monthly bills hassle free.
·
National Electronic Clearing Service (NECS) – This facilitates multiple
advantages to beneficiary accounts with destination branches against a single
debit of the account of the sponsor bank.
·
Electronic Funds Transfer (EFT) – This retail funds transfer
system was to enable an account holder of a bank to electronically transfer
funds to another account holder with any other intermediate or participating
bank.
·
National Electronic Funds Transfer (NEFT) – A secure system
to facilitate real-time fund transfer between individuals/corporates.
·
Real Time Gross Settlement (RTGS) – A funds transfer function in
which transfer of money takes place from one bank to another on a real-time
basis without delaying or netting with any other transaction.
·
Clearing Corporation of India Limited (CCIL) – This system is for banks,
financial institutions, non-banking financial companies and primary dealers, to
serve as an industry service mechanism for clearing settlement of trades in
money market, government securities and foreign exchange markets.
·
The RBI (Reserve Bank of India) has made changes to the
Prepaid Payment Instruments (PPI) also know as e-wallets. These changes include
KYC –known your customer compliance. KYC is the process of collecting user
details by the service provider and verifying the same with the respective
government bodies.
CURRENTLY :-
Headquarter: Mumbai, India
Founded: 1 April
1935, Kolkata
Governor: Shaktikanta Das
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