The Reserve Bank of India was established on April 1, 1935 under the Reserve Bank of India Act, 1934.
Initially RBI was privately owned, it was nationalized in 1949.
The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937.
The Main objective is 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.
Prior to the establishment of the Reserve Bank, the Indian financial system was totally inadequate dual control of currency by the Central Government and of credit by the Imperial Bank of India.
The Hilton-Young Commission therefore ended by setting-up of a central bank, called the Reserve Bank of India, which would regulate the financial policy and develop banking facilities throughout the country.
The fundamental object of the Reserve Bank of India is to discharge purely central banking functions in the Indian money market, i.e., to act as the note- issuing authority, bankers’ bank and banker to government, and to promote the growth of the economy within the framework of the general economic policy of the government, consistent with the need of maintenance of price stability.
Central Board of RBI:
The Reserve Bank’s affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India (RBI) Act 1934.
The organization and management of RBI is vested on the Central Board of Directors. It is responsible for the management of RBI.Central Board of Directors consist of 20 members. It is constituted as follows.
It is the highest authority of RBI.
He is appointed by the Government of India for a term of 5 years.
He can be re-appointed for another term.
Four Deputy Governors:
Four deputy Governors are nominated by Central Govt. for a term of 5 years.
Fifteen members of the Central Board are appointed by the Central Government. Out of these, four directors, one each from the four local Boards is nominated by the Government separately by the Central Government.
The Central board of directors exercises all the powers of the bank. The Central Board should meet at least six times in each year and at least once in three months. Usually, the Central Board keeps a meeting in March every year at New Delhi so as to discuss the budget with the Finance Minister after its presentation in parliament. Similarly, it keeps a meeting in August at Mumbai in order to pass the Bank’s annual report and accounts.
There are four regions: the Western, the Eastern, the Northern and the southern regions. For each of these regions there is a Local Board with headquarters in Mumbai, Kolkata, New Delhi and Chennai.
Local Boards consist of five members each, appointed by the central Government for a term of 4 years to represent territorial and economic interests and the interests of co-operatives and indigenous banks.
The function of the local boards is to advise the central board on general and specific issues referred to them and to perform duties which the central board delegates.
Functions of RBI:
It is the main monetary authority of the country.
It formulates implements and monitors the monetary policy and thereby plays a key role in maintaining price stability and ensuring adequate flow of credit to productive sectors.
RBI is the regulator and supervisor of the financial system in the country. It prescribes broad parameters of banking operations within which the country’s banking and financial system functions.
It manages the foreign exchange of the country.
Performs merchant banking function for the central and the state governments; also acts as their banker.
Maintains banking accounts of all scheduled banks.
Issues and exchanges or destroys currency and coins not fit for circulation.