Reserve Bank of India (RBI)

Establishment
Foundation: The RBI was established on April 1, 1935, under the recommendations of the Hilton Young Commission (also known as the Royal Commission on Indian Currency and Finance).
Legal Framework: It was set up under the Reserve Bank of India Act, 1934.
Headquarters: Initially established in Calcutta (Kolkata), its central office was permanently moved to Mumbai in 1937.
Nationalization: It was originally established as a shareholders’ bank and was nationalized on January 1, 1949, following India’s independence, under the Reserve Bank (Transfer to Public Ownership) Act, 1948.
First Leadership:
Sir Osborne Smith was the first Governor of the RBI.
Sir C. D. Deshmukh was the first Indian Governor of the RBI (serving during nationalization in 1949).
 
Organization and Management
The central board of directors oversees the affairs of the RBI, appointed or nominated by the Government of India in accordance with the RBI Act.
Position / Board Member
Details
Governor
Head of the RBI and the central bank; appointed for a term up to 5 years.
Deputy Governors
Maximum of 4 Deputy Governors appointed by the government.
Other Directors
Nominated directors representing various sectors, plus Government officials representing the Ministry of Finance.
 
Core Functions of the RBI
The RBI performs several critical functions to manage the country’s financial and monetary system:
Banker to the Government: Manages government accounts, buys and sells government securities, and acts as a banker to both the Central Government and State Governments. It also provides Ways and Means Advances (WMA) (short-term loans) to governments.
Banker’s Bank and Supervisor: Commercial banks are required to maintain a portion of their reserves with the RBI. It regulates, inspects, and licenses banks to ensure systemic stability. It acts as the Lender of Last Resort by providing emergency financial assistance to banks facing liquidity crunches.
Issuer of Currency: The RBI has the sole authority to issue banknotes in India (ranging from ₹2 to ₹2000 notes).
Note: One-rupee notes and all coins are issued by the Ministry of Finance (Government of India), though they are circulated through the RBI. The One-Rupee note bears the signature of the Finance Secretary.
Custodian of Foreign Exchange Reserves: Manages and maintains India’s foreign exchange reserves and regulates external trade and payments under the Foreign Exchange Management Act (FEMA), 1999.
Controller of Credit / Monetary Policy: Controls money supply and inflation in the economy using various qualitative and quantitative tools.
 
Monetary Policy Tools
The RBI controls inflation and stabilizes the economy through the Monetary Policy Committee (MPC), a statutory body set up under Section 45Z of the RBI Act. The tools are divided into two main categories:
Quantitative Tools (Directly control overall money supply)
Qualitative Tools (Regulate direction/allocation of credit)
Repo Rate: Rate at which RBI lends short-term money to commercial banks.
Margin Requirements: Difference between the security’s market value and the loan amount granted.
Reverse Repo Rate: Rate at which RBI borrows money from commercial banks.
Moral Suasion: Informal appeals made by the RBI to banks to align with credit policies.
Cash Reserve Ratio (CRR): Percentage of total deposits that banks must keep cash-in-hand with the RBI.
Direct Action: Penalties or restrictions imposed on non-compliant banks.
Statutory Liquidity Ratio (SLR): Percentage of deposits that banks must maintain in liquid assets (gold, approved securities) with themselves.

Bank Rate: Rate at which RBI rediscounts bills of exchange or lends long-term funds.

Open Market Operations (OMO): Buying and selling of Government Securities (G-Secs) in the open market.

 
Structural Facts & Subsidiaries
Minimum Reserve System: The RBI follows this system for issuing currency notes. It must maintain a minimum reserve of ₹200 crores in gold and foreign securities, out of which at least ₹115 crores must be in gold.
Emblem: The RBI official seal/emblem features a Palmyra Palm tree and a Panther (Tiger).
Fully-Owned Subsidiaries:
DICGC (Deposit Insurance and Credit Guarantee Corporation): Insures bank deposits up to ₹5,00000 per depositor per bank.
BRBNMPL (Bharatiya Reserve Bank Note Mudran Private Limited): Prints banknotes. It operates presses in Mysuru (Karnataka) and Salboni (West Bengal).
ReBIT (Reserve Bank Information Technology): Focuses on IT and cybersecurity for the banking sector.
IFTAS (Indian Financial Technology and Allied Services): Manages critical infrastructure like the Structured Financial Messaging System (SFMS).