The Theory of Everything: Reserve Bank of India

Here we are with our new initiative The Theory of Everything which will enlighten you about interesting facts which will surely help you to excel in General Awareness Section for all Banking and Insurance Exams. Banking Exams are enlarging their syllabus for General Awareness section day by day. So in order to cope with the new pattern and to master in this section we need to widen our scope of information.

Reseve Bank of India

RBI the acronym of Reserve Bank of India is the central institution of India which controls the Monetary Policy & the circulation of money in the Indian economy. 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 Act.

Establishment

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated.

Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India.

Who created RBI?

The bank was set up on basis of recommendations from Hilton - Young Commission. During 1926, Hilton- Young commission was Royal Commission on Indian Currency and Finance.

How was RBI established?

The working guidelines, style and outlook of the RBI were abstract by Dr B. R. Ambedkar in his book "The Problem of the Rupee – Its origin and its solution” in front of Hilton Young Commission.

As a result of this RBI was established on April 1st, 1935.

Powers of RBI

• Issuer of Currency Notes
• Banker to government
• Works as an agent to central & state government
• Manages exchange rate
• Controls Credit Function
• Licence issuer of new banks
• Development of financial institution
• Development of Agriculture
• Supports Industrial sectors for Finance
• Control Over NBFIs
• Implementation of Deposit Insurance Scheme

Preamble

The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as to regulate the issue of Bank Notes and 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.

Financial Supervision

The Reserve Bank of India performs this function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India.

Constitution

The Board is constituted by co-opting four Directors from the Central Board as members for a term of two years and is chaired by the Governor. The Deputy Governors of the Reserve Bank are ex-officio members. One Deputy Governor, usually, the Deputy Governor in charge of banking regulation and supervision, is nominated as the Vice-Chairman of the Board.

Current Focus

• supervision of financial institutions
• consolidated accounting
• legal issues in bank frauds
• divergence in assessments of non-performing assets and
• supervisory rating model for banks.

Legal Framework

1. Acts administered by Reserve Bank of India

• Reserve Bank of India Act, 1934
• Public Debt Act, 1944/Government Securities Act, 2006
• 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 (Chapter II)
• Credit Information Companies(Regulation) Act, 2005
• Payment and Settlement Systems Act, 2007

Payment and Settlement Systems Regulations, 2008 and Amended up to 2011 and BPSS Regulations, 2008

The Payment and Settlement Systems (Amendment) Act, 2015 - No. 18 of 2015

• Factoring Regulation Act, 2011

2. Other relevant Acts

• Negotiable Instruments Act, 1881
• Bankers' Books Evidence Act, 1891
• State Bank of India Act, 1955
• Companies Act, 1956/ Companies Act, 2013
• Securities Contract (Regulation) Act, 1956
• State Bank of India Subsidiary Banks) Act, 1959
• Deposit Insurance and Credit Guarantee Corporation Act, 1961
• Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
• Regional Rural Banks Act, 1976
• Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980
• National Bank for Agriculture and Rural Development Act, 1981
• National Housing Bank Act, 1987
• Recovery of Debts Due to Banks and Financial Institutions Act, 1993
• Competition Act, 2002
• Indian Coinage Act, 2011 : Governs currency and coins
• Banking Secrecy Act
• The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003
• The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993

Monetary Authority: Formulates implements and monitors the monetary policy.

Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.

Regulator and supervisor of the financial system: Prescribes broad parameters of banking operations within which the country's banking and financial system functions.

Objective: maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public.

Manager of Foreign Exchange: Manages the Foreign Exchange Management Act, 1999.

Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Banker to banks: maintains banking accounts of all scheduled banks.

List of Governors

Deputy Governors of India

• Urjit R. Patel
• Shri R. Gandhi
• Shri S. S. Mundra
• Shri N. S. Vishwanathan

Interesting Facts about RBI

1. The logo of RBI was inspired from the East India Company Double Mohur.
2. In April 1, 1935 it was formed as a private entity but later it was changed as government entity.
3. The bank was established on the recommendation of the Hilton Young Commission.
4. The first woman to become the deputy governor of RBI is K. J. Udeshi, She was appointed in 2003.
5. RBI is responsible only for printing notes & government of India is responsible for minting of coins.
6. RBI demonetized notes in the denominations of five thousand rupees (Rs. 5,000) and ten thousand rupees (Rs. 10,000) in 1938. They were reintroduced in 1954 and again demonetized in 1978. RBI can print these notes according to the RBI act of 1934.
7. RBI was also the central bank for two other countries. It played the role of Central Bank of Pakistan till June 1948 and the Central Bank of Burma (Myanmar) till April 1947.
8. The first Indian to hold the position of the Governor of RBI was Mr. C.D. Deshmukh. He was the third governor of RBI.
9. Manmohan Singh is the only Prime Minister to have also served as the Governor of RBI.
10. RBI has 29 offices in India which are mostly located in the state capitals.
11. RBI runs a Monetary Museum in the premises of the Mumbai head office.

Note: Tomorrow RBI will release the fresh monetary key policies rates after 4th BI- Monthly Monetary Policy Rates.

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