Functions of RBI

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Reserve Bank of India: Functions and Working


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The Reserve Bank of India, the nation’s central bank, began operations on April 01, 1935. It was established with the objective of ensuring monetary stability and operating the currency and credit system of the country to its advantage. Its functions comprise monetary management, foreign exchange and reserves management, government debt management, financial regulation and supervision, apart from currency management and acting as banker to the banks and to the Government. In addition, from the beginning, the Reserve Bank has played an active developmental role, particularly for the agriculture and rural sectors. Over the years, these functions have evolved in tandem with national and global developments This book aims to demystify the central bank by providing a simple account of the Reserve Bank’s operations and the multidisciplinary nature of its functions. The Bank today focuses, among other things, on maintaining price and financial stability; ensuring credit flow to productive sectors of the economy; managing supply of good currency notes within the country; and supervising and taking a lead in development of financial markets and institutions. The book serves to highlight how the Reserve Bank’s decisions touch the daily lives of all Indians and help chart the country’s economic and financial course. We hope that readers would find the book , authored by the staff of the Bank, useful in getting a better appreciation of the policies and concerns of the Reserve Bank.

Dr. J. Sadakkadulla Principal Reserve Bank Staff College Chennai



S. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Chapters Overview Organisation Monetary Management Issuer of Currency Banker and Debt Manager to Government Banker to Banks Financial Regulation and Supervision Foreign Exchange Reserves Management Foreign Exchange Management Market Operations Payment and Settlement Systems Developmental Role Research and Data Dissemination How Departments Work Chronology of Important Events in the History of the Bank Annex - 1 Publications by the Reserve Bank Annex – 2 List of Abbreviations Page No. 7 12 21 27 32 35 38 52 55 60 63 67 76 79 107 112 114


Index on Boxes
S. No. Name of the Box Item 1 2 3 4 5 6 7 8 9 10 11 12 Origins of the Reserve Bank of India Functions of the Reserve Bank Central Office Departments Monetary Policy Transmission Currency Unit and Denomination Banker to Banks Prudential Norms Investment of Reserves Foreign Exchange Reserves Management: The RBI’s Approach Payment and Settlement System: Evolution and Initiatives Institutions to meet Needs of the Evolving Economy Page No. 8 8 15 24 28 36 41 53 54 64 73

Improving Banking Services in Comparatively Backward States 74




The origins of the Reserve Bank of India can be traced to 1926, when the Royal Commission on Indian Currency and Finance – also known as the Hilton-Young Commission – recommended the creation of a central bank for India to separate the control of currency and credit from the Government and to augment banking facilities throughout the country. The Reserve Bank of India Act of 1934 established the Reserve Bank and set in motion a series of actions culminating in the start of operations in 1935. Since then, the Reserve Bank’s role and functions have undergone numerous changes, as the nature of the Indian economy and financial sector changed.


Origins of the Reserve Bank of India  1926: The Royal Commission on Indian Currency and Finance recommended creation of a central bank for India.  1927: A bill to give effect to the above recommendation was introduced in the Legislative Assembly, but was later withdrawn due to lack of agreement among various sections of people.  1933: The White Paper on Indian Constitutional Reforms recommended the creation of a Reserve Bank. A fresh bill...
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