RESERVE BANK OF INDIA (Syllabus GS Paper 3 – Economy)

Context: The Indian central bank, which turns 90 on April 1, joins the ranks of other nonagenarian central banks, including the Central Bank of Argentina and the Bank of Canada, both recently celebrating their 90th anniversaries, having been established in 1935.

Reserve Bank of India

• Formation: Established in 1934 through the Reserve Bank of India Act, based on Hilton Young Commission recommendations.
• Centralization: Initially in Kolkata, permanently shifted to Mumbai in 1937.
• Nationalization: Privately owned at inception, nationalized in 1949 under complete Government ownership.
• Regional Role: Acted as central bank for Burma (Myanmar) and Pakistan until respective independence.
• Central Board Composition: Comprises a 21-member board including Governor, Deputy Governors, Finance Ministry reps, government-nominated directors, and representatives from local boards.
• Objectives of RBI:

oCurrency Regulation: Control, issuance, and maintenance of currency supply.

oMonetary Stability: Ensuring stability by maintaining reserves.

oFinancial Integrity: Issuance of bank notes and maintaining financial stability independent of political influences.

oEconomic Growth: Supporting planned economic advancement.

oBanking Roles: Acting as Banker’s bank, Banker to government, and note-issuing authority.

• Functions of RBI

oMoney Supply Regulation: Controls and maintains the supply of the Indian rupee.

oPayment Systems Management: Manages the main payment system and promotes economic development.

oFinancial Supervision: Conducts consolidated supervision of the financial sector.

oBanker to Government: Manages government accounts and transactions.

oForeign Exchange Management: Facilitates external trade and maintains the foreign exchange market.

Significance of RBI

• Autonomy: Functions autonomously despite lacking a legal mandate.
• Public Interest: Upholds public interests in banking policies.
• Currency Stability: Maintains stability in the exchange value of the rupee.
• Payment Innovations: Introduces and upgrades safe and efficient payment systems.