After the Central Government of India and the Ministry of Finance, its Reserve Bank of India plays the most crucial role in driving the economy of Indian banking system. RBI extends its services to the other commercial banks of India and thus these banks provide banking services to the netizens. Also, RBI functions provides a safe and secure banking infrastructure to people living in India.
The government has always appointed the RBI’s directors, and this has been the case since the bank became fully owned by the government of India as outlined by the Reserve Bank of India Act. The central bank manages to reach different goals of the Foreign Exchange Management Act, 1999. Their objective is to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India. The RBI is the central bank of India and helps determines strategies for the growth of the country. At present, the Governor of the RBI is Raghuram Rajan, who is an economist. The RBI has the power to influence the supply of money by adjusting the deposits, reserves (SLR and CRR) it expects banks to maintain, and interest rates that it charges commercial banks that wish to borrow money.
However, it was decided to replace the lion with the tiger, the national animal of India. The Central Office of the RBI was established in Calcutta (now Kolkata) but was moved to Bombay (now Mumbai) in 1937. The RBI also acted as Burma’s (now Myanmar) central bank until April 1947 (except during the years of Japanese occupation (1942–45)), even though Burma seceded from the Indian Union in 1937. After the Partition of India in August 1947, the bank served as the central bank for Pakistan until June 1948 when the State Bank of Pakistan commenced operations. Though set up as a shareholders’ bank, the RBI has been fully owned by the Government of India since its nationalisation in 1949.[19] RBI has a monopoly of note issue. The RBI acts as a representative of India in the IMF (International Monetary Fund) or RBI monetary policy, and also in many other major international financial organizations.
In obedience to the Reserve bank of India Act of 1934, the RBI was founded in 1935. Since 1937, the bank has been permanently situated in Mumbai, Maharashtra. RBI is the central pillar for forwarding and boosting the Indian economy. RBI has been a member of the International Monetary Fund (IMF) since 27th December 1945. As for cooperative credit movement, the RBI’s performance in really commendable.
All the commercial banks in India are required to maintain cash reserves, per RBI‘s monetary policy. The main goal of the RBI’s monetary policy is price stability. The issue and printing of currency notes are one of the primary functions of the RBI functions. The Reserve Bank of India prints notes of all denominations except 1 rupee and that’s because the one rupee note is issued by the Indian Ministry of Finance. The issue and printing of currency notes in India are regulated under the Minimum Reserve System (MRS).
Banks will provide exchange facility for these notes until further communication. The reserve bank has also clarified that the notes issued before 2005 will continue to be legal tender. This would mean that banks are required to exchange the notes for their https://1investing.in/ customers as well as for non-customers. After 1 July 2014, to exchange more than 15 pieces of ‘500 and ‘1000 notes, non-customers must furnish proof of identity and residence as well as show aadhar to the bank branch in order to exchange the notes.
These individuals make important decisions about monetary policy. The remaining three members are external (appointed by the Government of India). The RBI functions acts as a banker to the central and the state governments of India and fulfills all the banking necessities of the government.
Bank rate is defined in Section 49 of the RBI Act of 1934 as the ‘standard rate at which RBI is prepared to buy or rediscount bills of exchange or other commercial papers eligible for purchase’. When banks want to borrow long term funds from the RBI, it is the interest rate which the RBI charges to them. It is currently set to 4.65%.[106] The bank rate is not used to control money supply, but penal rates continue to be linked to the bank rate. If a bank fails to meet SLR or CRR requirements then the RBI will impose a penalty of 300 basis points above bank rate. As the name suggest, reverse repo rate is just the opposite of repo rate.
Also, other activities like presenting the economic data of the nation, GDP growth, and the inflation rate is also done by the RBI functions. First and foremost, the RBI formulates, features of rbi implements, and monitors India’s monetary policy. The bank’s management objective is to maintain price stability and ensure that credit is flowing to productive economic sectors.
OTC derivatives here include interest rate swaps, forward rate agreements, foreign currency swaps, foreign currency-rupee swaps, foreign currency options, foreign currency-rupee options. The RBI oversees these payment infrastructures out in place in order to ensure its efficiency and safety of its participants. This role has been of growing importance especially as the country is encouraged into adopting the electronics payment system and keeping up with international developments.
The debt management policy mainly aims at minimizing the cost of borrowing and smoothening the maturity structure of debt. RBI manages the public debt and also issue new loans on behalf of central and state government. In fact, it plays a big role in steering the economy in the right direction. Raghuram Rajan has played his part and that is why you are enjoying lower interest rates on your loans as well as low inflation today.
Moreover, RBI represents the Indian Government globally, as RBI has been a part of the International Monetary Fund since 1945. The Reserve Bank of India features a Board of directors, the bank’s main committee. The committee board consists of Governor and four deputy governors, each representing a region. There are four regional representations of RBI, New Delhi in the North, Chennai in the South, Mumbai in the West, and Kolkata in the East.
The IFTAS has taken over the Indian FInancial NETwork (INFINET), Structured Financial Messaging System (SFMS) and the Indian Banking Community Cloud (IBCC) from the IDRBT, effective 1 April 2016. It has been set up by RBI to serve its Information Technology and cybersecurity needs and to improve the cyber resilience of the Indian banking industry. He serves as the 25th Governor of RBI and joined the position in December 2018. Before him, Shri Urjit Patel was the RBI Governor, who significantly demonetized 500 and 1000 rupees notes. According to the latest Union Budget 2023, the Reserve Bank of India calls for a ban on cryptocurrency. This is because the RBI Governor expressed concerns regarding the regulation of cryptocurrency and its rapidly growing demand in the country.
RBI maintains banking accounts of all scheduled banks.[75] Commercial banks create credit. It is the duty of the RBI to control the credit through the CRR, repo rate, and open market operations. As the bankers’ bank, the RBI facilitates the clearing of cheques between the commercial banks and helps the inter-bank transfer of funds. It acts as the lender of the last resort by providing emergency advances to the banks. The original choice for the seal of RBI was the East India Company Double Mohur, with the sketch of the Lion and Palm Tree.
