INTRODUCTION

The central bank of the country is the Reserve Bank of India(RBI). It was established in April 1935 with
a share capital of Rs.5 crores on the basis of the recommendations of the Hilton Young Commission. The
share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private
shareholders in the beginning. The Government held shares of nominal value of Rs. 2,20,000. Reserve
Bank of India was nationalised in the year 1949. The general superintendence and direction of the Bank is
entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one
Government official from the Ministry of Finance, ten nominated Directors by the Government to give
representation to important elements in the economic life of the country, and four nominated Directors by
the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata,
Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a
term of four years to represent territorial and economic interests and the interests of co-operative and
indigenous banks. The Reserve Bank of India Act, 1934 was commenced on April1, 1935. The Act, 1934
(II of 1934) provides the statutory basis of the functioning of the Bank. The Bank as constituted for the
need of following:

To regulate the issue of banknotes

To maintain reserves with a view to securing monetary stability and

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

OBJECTIVES OF THE RESERVE BANK OF INDIA

The Preamble to the Reserve Bank of India Act, 1934 spells out the objectives of the Reserve
Bank as: to regulate the issue of Bank notes and the keeping of reserves with a view to securing
m o n e t a r y s t a b i l i t y i n I n d i a a n d g e n e r a l l y t o o p e r a t e t h e c urrency
and credit system of the country to its advantage.

Pr i o r t o t h e e s t a b l i s h me n t o f t h e Re s e r v e Ba n k , t h e I n d i a n f i n a n c i a l s y s t e
m wa s t o t a l l y i n a d e q u a t e o n a c c o u n t o f t h e i n h e r e n t we a k n e s s o f t h e
d u a l c o n t r o l o f c u r r e n c y b y t h e Central Government and of credit by the Imperial Bank of
India. The Hi l t onYoung Commi ssi on, t her ef or e, r ecommended t hat t h e d i c h o t o my o f
f u n c t i o n s a n d d i v i s i o n o f r e s p o n s i b i l i t y f o r control of currency and credit and the
divergent policies in this respect must be ended by setting-up of a central bank called the
Reserve Bank of India which would regulate the financial pol i cy and devel op banki ng
f aci l i t i es t hr oughout t he count r y. Hence, t he Bank was est abl i shed wi t h t hi s
pr i mar y obj ect i n view. Another objective of the Reserve Bank has been to remain free
f r o m p o l i t i c a l i n f l u e n c e a n d b e i n s u c c e s s f u l o p e r a t i o n f o r ma i n t a i n i n
g f i n a n c i a l s t a b i l i t y a n d c r e d i t . Th e f u n d a me n t a l o b j e c t o f t h e R e s e r v e B a
n k o f I n d i a i s t o d i s c h a r g e p u r e l y cent r al banki ng f unct i ons i n t he Indi an
money mar ket , i . e. , t o act as the note- issuing authority, bankers bank and banker to
government, and to promote the growth of the economy
withint h e f r a m e w o r k o f t h e g e n e r a l e c o n o m i c p o l i c y o f t h
e Government, consistent with the need of maintenance of price stability. A significant
object of the Reserve -Bank of India has also been t o a s s i s t t h e p l a n n e d p r o c e s s o f
d e v e l o p me n t o f t h e I n d i a n economy.

Besi des t he t r adi t i onal cent r al banki ng f unct i ons, wi t h t he l aunchi ng of t he f i ve -
year pl ans i n t he count r y, t he Reserve Bank of India has been moving ahead in
performing a host of devel opment al and pr omot i onal f unct i ons, whi ch ar e normally
beyond the purview of a traditional Central Bank.

ORGANIZATION AND MANAGEMENT OF RESERVEBANK OF INDIA
CENTRAL BOARD OF DIRECTORS:

Th e o r g a n i z a t i o n a n d ma n a g e me n t o f RBI i s v e s t e d o n t h e C e n t r a l B o a
r d o f D i r e c t o r s . I t i s r e s p o n s i b l e f o r t h e management of
RBI. Cent r al Boar d of Di r ect or s consi st s of 20members. It is constituted as follows:

One Governor: it is the highest authority of RBI. He is appointed by the Government of India for a term
of 5years. 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 Directors: Other fifteen members of the Central Board are appointed by the Central
Government. Out of these, four directors, one each from the four local Boards are nominated by
the Government separately by the Central Government. Ten directors nominated by the Central
Government are among t he exper t s of commer ce, i ndust r i es, f i nance, economi cs
and cooperation. The finance secretary of the Government of India i s al so
nomi nat ed as Govt . of f i cer i n t he boar d. Ten di r ect or s are nominated for a period
of 4 years. The Governor acts as the Chief Executive officer and
Chairmano f t h e C e n t r a l B o a r d o f Di r e c t o r s . I n h i s a b s e n c e a d e p u
t y Governor nominated by the Governor, acts as the Chairman
of t he Cent r al Boar d. The deput y gover nor s and gover nment s officer nominee
are not entitled to vote at the meetings of the Boar d. The Gover nor and f our
deput y Gover nor s ar e f ul l t i me officers of the Bank.


LOCAL BOARDS:

Besides the central board, there are local boards for four regional areas of the country with their head-
quarters at Mumbai, Kolkata, Chennai, and New Delhi. 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.


OFFICES OF RBI:

T h e He a d o f f i c e o f t h e b a n k i s s i t u a t e d i n Mu mb a i a n d
t h e o f f i c e s o f l o c a l b o a r d s a r e s i t u a t e d i n D e l h i , K o l k a t a a n d Che
nnai . In or der t o mai nt ai n t he smoot h wor ki ng of
banki ngs y s t e m , R B I h a s o p e n e d l o c a l o f f i c e s o r b r a n c
h e s i n Ahmedabad, Bangal or e, Bhopal , Bhubaneshwar , Chandi gar h, Guwahati,
Hyderabad, Jaipur, Jammu, Kanpur, Nagpur, Patna, Thiruvananthpuram, Kochi, Lucknow and
Byculla (Mumbai). The RBI can open its offices with the permission of the Government of
Indi a. In pl aces wher e t her e ar e no of f i ces of t he bank, i t i s represented by the state
Bank of India and its associate banks as the agents of RBI.
ADMINISTRATIVE DEPARTMENT OF RBI

In or der t o mai nt ai n smoot h f unct i oni ng, RBI has est abl i shed different administrative
departments which are the part of its internal organization. These are as follows:

Department of currency management.


Department of banking supervision.

Rural planning and credit department.

Department of banking operations and development.

Exchange control department.

Secretarys department

Industrial and export credit department

Department of administration and personnel management

Department of Government and Bank accounts.

Department of non-Banking supervision.

Internal debt management cell.

Inspection department.

Department of information and technology. Other department: Besides these above
departments RBI has other departments such as premises department, press relation
department, personnel policy department etc.


FUNCTIONS OF RBI

1. RBI is the Regulator of Financial System
The RBI regulates the Indian banking and financial system by issuing broad guidelines and instructions.
The objectives of these regulations include:
Controlling money supply in the system,
Monitoring different key indicators like GDP and inflation,
Maintaining peoples confidence in the banking and financial system, and
Providing different tools for customers help, such as acting as the Banking Ombudsman.
2. RBI is the Issuer of Monetary Policy
The RBI formulates monetary policy twice a year. It reviews the policy every quarter as well. The main
objectives of monitoring monetary policy are:
Inflation control
Control on bank credit
Interest rate control
The tools used for implementation of the objectives of monetary policy are:
Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR),
Open market operations,
Different Rates such as repo rate, reverse repo rate, and bank rate.
3. RBI is the Issuer of Currency
Section 22 of the RBI Act gives authority to the RBI to issue currency notes. The RBI also takes action to
control circulation of fake currency.
4. RBI is the Controller and Supervisor of Banking Systems
The RBI has been assigned the role of controlling and supervising the bank system in India. The RBI is
responsible for controlling the overall operations of all banks in India. These banks may be:
Public sector banks
Private sector banks
Foreign banks
Co-operative banks, or
Regional rural banks
The control and supervisory roles of the Reserve Bank of India is done through the following:
Issue Of Licence: Under the Banking Regulation Act 1949, the RBI has been given powers to grant
licenses to commence new banking operations. The RBI also grants licenses to open new branches
for existing banks. Under the licensing policy, the RBI provides banking services in areas that do
not have this facility.
Prudential Norms: The RBI issues guidelines for credit control and management. The RBI is a
member of the Banking Committee on Banking Supervision (BCBS). As such, they are responsible
for implementation of international standards of capital adequacy norms and asset classification.
Corporate Governance: The RBI has power to control the appointment of the chairman and directors
of banks in India. The RBI has powers to appoint additional directors in banks as well.
KYC Norms: To curb money laundering and prevent the use of the banking system for financial
crimes, The RBI has Know Your Customer guidelines. Every bank has to ensure KYC norms are
applied before allowing someone to open an account.
Transparency Norms: This means that every bank has to disclose their charges for providing
services and customers have the right to know these charges.
Risk Management: The RBI provides guidelines to banks for taking the steps that are necessary to
mitigate risk. They do this through risk management in basel norms.
Audit and Inspection: The procedure of audit and inspection is controlled by the RBI through off-
site and on-site monitoring system. On-site inspection is done by the RBI on the basis of
CAMELS. Capital adequacy; Asset quality; Management; Earning; Liquidity; System and
control.
Foreign Exchange Control: The RBI plays a crucial role in foreign exchange transactions. It does
due diligence on every foreign transaction, including the inflow and outflow of foreign exchange. It
takes steps to stop the fall in value of the Indian Rupee. The RBI also takes necessary steps to
control the current account deficit. They also give support to promote export and the RBI provides a
variety of options for NRIs.
Development: Being the banker of the Government of India, the RBI is responsible for
implementation of the governments policies related to agriculture and rural development. The RBI
also ensures the flow of credit to other priority sectors as well. Section 54 of the RBI gives stress on
giving specialized support for rural development. Priority sector lending is also in key focus area of
the RBI.
Apart from the above, the RBI publishes periodical review and data related to banking. The role and
functions of the RBI cannot be described in a brief write up. The RBI plays a very important role in every
aspect related to banking and finance. Finally the control of NBFCs and others in the financial world is
also assigned with RBI.

SUPERVISORY FUNCTIONS

In addition to its traditional central banking functions, the Reserve bank has certain non-monetary
functions of the natureof supervision of banks and promotion of sound banking in India. The Reserve
Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision
andcontrol over commercial and co-operative banks, relating to licensing and establishments, branch
expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction,
and liquidation. The RBI is authorised to carry out periodical inspections of the banks and to call for
returns and necessary information from them. The nationalisation of 14 major Indian scheduled banks in
July 1969has imposed new responsibilities on the RBI for directing the growth of banking and credit
policies towards more rapid development of the economy and realisation of certain desired social
objectives. The supervisory functions of the RBI have helped a great deal in improving the standard of
banking in India to develop on sound lines and to improve the methods of their operation.
PROMOTIONAL FUNCTIONS

With economic growth assuming a new urgency since Independence, the range of the Reserve Bank's
functions has steadily widened. The Bank now performs a variety of developmental and promotional
functions, which, at one time, were regarded as outside the normal scope of central banking. The Reserve
Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and
establish and promote new specialised financing agencies. Accordingly, the Reserve Bank has helped in
the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in 1962, the Unit Trust
of India in 1964, the Industrial Development Bank of India also in 1964, the Agricultural Refinance
Corporation of India in 1963 and the Industrial Reconstruction Corporation of India in 1972. These
institutions were set up directly or indirectly by the Reserve Bank to promote saving habit and to mobilise
savings, and to provide industrial finance as well as agricultural finance. As far back as 1935, the Reserve
Bank of India set up the Agricultural Credit Department to provide agricultural credit. But only since
1951 the Bank's role in this field has become extremely important. The Bank has developed the co-
operative credit movement to encourage saving, to eliminate moneylenders from the villages and to route
its short term credit to agriculture. The RBI has set up the Agricultural Refinance and Development
Corporation to provide long-term finance to farmers.

CONCLUSION

R B I i s t h e a p e x b a n k i n g i n s t i t u t i o n i n I n d i a . R B I i s a
n autonomous body promoted by the government of India and is
h e a d q u a r t e r e d a t Mu mb a i . T h e R B I p l a y s a k e y r o l e i n t h e management of
the treasury foreign exchange movements and
i s a l s o t h e p r i ma r y r e g u l a t o r f o r b a n k i n g a n d n o n -
b a n k i n g f i n a n c i a l i n s t i t u t i o n s . T h e R B I o p e r a t e s a n u
m b e r o f government mints that produce currency and coins.