Context

The Prime Minister addressed the opening ceremony of RBI@90, a program marking 90 years of the Reserve Bank of India.

About Reserve Bank of India (RBI)

• The Reserve Bank of India (RBI) was established on April 1, 1935, in accordance with the provisions of the Reserve Bank of India Act, 1934, based on the recommendations of the Hilton Young Commission.
• The Central Office of the Reserve Bank was established in Kolkata but permanently moved to Mumbai in 1937.
• Though originally privately owned, since nationalisation in 1949, the Reserve Bank is wholly owned by the Government of India.
• The first Governor of the RBI was the Australian Sir Osborne Arkell Smith, one of the two managing governors of the Imperial Bank of India.
• Sir C D Deshmukh was the first Indian to become Governor.

RBI Governance

• A central board of directors governs the Reserve Bank’s affairs. 
• The Government of India appoints the board per the Reserve Bank of India Act.
• Appointed/nominated for a period of four years
• Constitution:
  • Official Directors
    • Full-time: Governor and at most Four Deputy Governors.
  • Non-Official Directors
    • Nominated by Government: Ten Directors from various fields and two government officials.
  • Others: Four Directors – one each from four local boards.

Functions Of Reserve Bank of India (RBI)

General superintendence and direction of the Bank’s affairs

Monetary Authority:

• Formulates, implements, and monitors the monetary policy.
• Objective: maintaining price stability while keeping in mind the objective of growth.

Regulator and Supervisor of the Financial System: 

• Banker to other Banks: The RBI, being an apex monetary institution has obligatory powers to guide, help and direct other commercial banks in the country.
• Lender of the last resort: Every commercial bank has to maintain a part of its reserves with its parent viz., the RBI. Similarly, in need or in urgency, these banks approach the RBI for funds. 
• Objective: maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public.

Banker to the Government: 

• The RBI, being the apex monitory body has to work as an agent of the central and state governments. 
  • It manages government public debts and provides an overdraft facility to the government when it faces a financial crunch. 

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 the foreign exchange market in India.

Issuer of currency:

• The RBI has the sole right, authority, or monopoly of issuing currency notes except one rupee note and coins of smaller denomination.
• Objective: to give the public an adequate quantity of good-quality currency notes and coins.

Developmental Role:  

• Performs various promotional functions to support national objectives.

Regulator and Supervisor of Payment and Settlement Systems: 

• Introduces and upgrades safe and efficient modes of payment systems in the country to meet the requirements of the public at large.
• Objective: maintain public confidence in the payment and settlement system