History and Functions Of Reserve Bank Of India (RBI) For Bank and Other Competitive Exams

RBI HISTORY

• INAGURATED IN 1935 WITH A SHARE CAPITAL OF RS. 5 CR.

• THE GOVERNMENT OF INDIA HELD SHARES OF NOMINAL VALUE OF RS. 2,22,000.

• RBI WAS NATIONALISED IN 1949.

CONSTITUTION OF RBI:

CENTRAL BOARD OF DIRECTORS OF 20 MEMBERS

• GOVERNOR & 4 DY. GOVERNORS.

• 1 GOVERNMENT OFFICIAL FROM MINISTRY OF FINANCE.

• 10 DIRECTORS BY GOVT. OF INDIA

• 4 DIRECTORS BY CENTRAL GOVT. (represent Local Board)

FUNCTIONS OF THE RESERVE BANK OF INDIA

GENERAL FUNCTIONS:

• BANK OF ISSUE.
• BANKER TO GOVERNMENT.
• BANKER’S BANK.
• CONTROLLER OF CREDIT.
• CUSTODIAN OF FOREIGN EXCHANGE RESERVES.
• SUPERVISORY FUNCTIONS
• PROMOTIONAL FUNCTIONS

BANK OF ISSUE:
• SOLE RIGHT TO ISSUE BANK NOTES OF ALL DENOMINATIONS.

• SEPARATE ISSUE DEPARTMENT FOR ISSUE OF CURRENCY NOTES.

• ORIGINAL ASSETS:
 2/5TH OF GOLD COINS, GOLD BULLION OR STERLING SECURITIES FOR AMOUNT OF GOLD NOT LESS THAN RS. 40 CR.
 3/5TH HELD IN RUPEE COINS, GOI RUPEE SECURITIES, PROMISSIONARY NOTES PAYABLE IN INDIA.

• MODIFIED PROVISIONS SINCE 1957 (POST-WAR PERIOD)
 MAINTAIN GOLD & FOREIGN EXCHANGE RESERVES OF RS. 200 CR, OF WHICH RS. 115 CR. SHOULD BE IN GOLD.

• THIS SYSTEM IS CALLED AS “MINIMUM RESERVE SYSTEM”.

BANKER TO GOVERNMENT:
• ACT AS GOVERNMENT BANKER, AGENT AND ADVISER.

• OBLIGATION TO TRANSACT GOVT. BUSINESS i.e.
   RECEIVE & MAKE PAYMENTS ON BEHALF OF GOVT.

• HELPS GOVT. TO FLOAT NEW LOANS & TO MANAGE PUBLIC DEBT.

• ACTS AS ADVISER TO THE GOVT. ON ALL MONETARY & BANKING MATTERS.

BANKER’S BANK:
• EVERY SCHEDULED BANK WAS REQUIRED TO MAINTAIN A CASH BALANCE EQUIVALENT TO 5% OF ITS DEMAND LIABILITES & 2% OF ITS TIME LIABILITES WITH RBI.

• AT PRESENT BANKS KEEP CASH RESERVES EQUAL TO 3%OF THEIR AGGREGATE DEPOSIT LIABILITIES.

• SCHEDULED BANKS CAN BORROW OR GET FINANCIAL ACCOMODATION IN TIMES OF NEED.

• SINCE COMMERCIAL BANKS ALWAYS EXPECT RBI TO COME TO THEIR HELP IN TIME OF CRISIS, RBI ALSO BECOMES “LENDER OF THE LAST RESORT”.

CONTROLLER OF CREDIT:

• RBI HOLDS THE CASH RESERVES OF ALL THE SCHEDULED BANKS.

• IT CONTROLS THE CREDIT OPERATIONS OF BANKS THRO’ QUANTITATIVE & QUALITATIVE CONTROLS.

• IT CONTROLS THE BANKING SYSTEM THRO’ THE SYSTEM OF LICENSING, INSPECTION AND CALLING FOR INFORMATION.

• IT ACTS AS THE LENDER OF THE LAST RESORT BY PROVIDING REDISCOUNT FACILITIES TO SCHEDULED BANKS.
CUSTODIAN OF FOREIGN EXCHANGE RESERVES:

• MAINTAINS THE OFFICIAL RATE OF EXCHANGE.
• ACC. TO RBI ACT OF 1934, BANK WAS REQUIRED TO BUY AND SELL AT FIXED RATES(AMOUNT NOT > 10,000) 
• AFTER BECOMING A MEMBER OF THE I.M.F i.e. “INTERNATIONAL MONETARY FUND” IN 1946, RBI MAINTAINS FIX EXCHANGE RATE WITH ALL OTHER MEMBER COUNTRIES OF THE I.M.F.
• RBI ACTS AS THE CUSTODIAN OF INDIA’S RESERVE OF INTERNATIONAL CURRENCIES.

SUPERVISORY FUNCTIONS:

• RBI HAS CERAIN NON-MONETARY FUNCTIONS

 SUPERVISION OF BANKS

 PROMOTION OF SOUND BANKING IN INDIA

• RBI IS AUTHORISED TO CARRY OUT PERIODICAL


INSPECTION OF BANKS.
• NATIONALISATION OF 14 MAJOR INDIAN SCHEDULED BANKS IN JULY 1969 IMPOSED NEW RESPONSIBILITIES ON RBI FOR DIRECTING THE GROWTH OF BANKING
AND CREDIT POLICIES TOWARDS RAPID ECONOMIC GROWTH.

PROMOTIONAL FUNCTIONS:

• PROMOTE BANKING HABIT.

• EXTEND BANKING FACILITIES TO RURAL & SEMI-URBAN AREAS.

• ESTABLISH & PROMOTE NEW SPECIALISED FINANCING AGENCIES.

 ACCORDINGLY RBI HAS SET UP :

 DEPOSIT INSURANCE CORPORATION (1962)

 UNIT TRUST OF INDIA (1964)

 INDUSTRIAL DEV. BANK OF INDIA (1964)

 AGRICULTURAL REFINANCE CORPORATION OF INDIA (1963)

 INDUSTRIAL RECONSTRUCTION CORPORATION OF INDIA (1972)

• THE BANK HAS DEVELOPED CO-OPERATIVE CREDIT  MOVEMENT TO:

 ENCOURAGE SAVING

 ELIMINATE MONEY-LENDERS FROM VILLAGE

• RBI WITH HELP OF ARDC PROVIDES LONG-TERM FINANCE TO FARMERS.

 For detailed RBI history visit Education section.

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