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The Reserve Bank of India (RBI) is India’s central bank, also known as the banker’s bank. The RBI controls monetary and other banking policies of the Indian government. The Reserve Bank of India (RBI) was established on April 1, 1935, in accordance with the Reserve Bank of India Act, 1934. The Reserve Bank is permanently situated in Mumbai since 1937.
RBI Full Form Reserve Bank of India
Overview of Reserve Bank of India (RBI)
Located in Mumbai, the RBI serves the financial market in many ways. The bank sets the overnight interbank lending rate. The Mumbai Interbank Offer Rate (MIBOR) serves as a benchmark for interest rate–related financial instruments in India.
The main purpose of the RBI is to conduct consolidated supervision of the financial sector in India, which is made up of commercial banks, financial institutions, and non-banking finance firms. Initiatives adopted by the RBI include restructuring bank inspections, introducing off-site surveillance of banks and financial institutions, and strengthening the role of auditors
First and foremost, the RBI formulates, 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. The RBI also manages all foreign exchange under the Foreign Exchange Management Act of 1999. This act allows the RBI to facilitate external trade and payments to promote the development and health of the foreign exchange market in India.
The RBI acts as a regulator and supervisor of the overall financial system. This injects public confidence into the national financial system, protects interest rates, and provides positive banking alternatives to the public. Finally, the RBI acts as the issuer of national currency.
For India, this means that currency is either issued or destroyed depending on its fit for current circulation. This provides the Indian public with a supply of currency in the form of dependable notes and coins, a lingering issue in India. In 2018 the RBI banned the use of virtual currencies by the financial agencies and banks that it regulates.
- 1926: The Royal Commission on Indian Currency and Finance recommended the creation of a central bank for India.
- 1927: A bill to give effect to the above recommendation was introduced in the Legislative Assembly. But it was later withdrawn due to lack of agreement among various sections of people.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 was introduced in the Legislative Assembly.
- 1934: The Bill was passed and received the Governor General’s assent
- 1935: The Reserve Bank commenced operations as India’s central bank on April 1 as a private shareholders’ bank with a paid up capital of rupees five crores (rupees fifty million).
- 1942: The Reserve Bank ceased to be the currency issuing authority of Burma (now Myanmar).
- 1947: The Reserve Bank stopped acting as banker to the Government of Burma.
- 1948: The Reserve Bank stopped rendering central banking services to Pakistan.
- 1949: The Government of India nationalized the Reserve Bank under the Reserve Bank (Transfer of Public Ownership) Act, 1948.
- Currently, the Bank’s Central Office, located at Mumbai, has twenty-seven departments. (Box No.3) These departments frame policies in their respective work areas. They are headed by senior officers in the rank of Chief General Manager.
RBI Full Form
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.
There were several causes for the creation of a central bank. Though the rupee was the common currency, there were several species of rupee coins of different values in circulation. The authorities, however, endeavored to evolve a standard coin. For many years, the Sicca of Murshidabad was, in theory, the standard coin, and the rates of exchange of the various rupees in terms of the Sicca rupee varied, the discount being called the batta.
The Government received enquiries from the Collectors as to the batta they should charge on the different species they received from zamindars and farmers. The proposed bank was to fix the value, in Sicca rupees, of the bills it had to issue in return for the money received from the Collectors, on the basis of the same batta. Thus, the bank was expected to assist in stabilizing inland exchange and in enforcing the Sicca coin as the standard coin of the Provinces.
RBI Full Form
Establishment of Reserve Bank of India
The Reserve Bank is fully owned and operated by the Government of India.
The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as:
- Regulating the issue of Banknotes
- Securing monetary stability in India
- Modernising the monetary policy framework to meet economic challenges
The Reserve Bank’s operations are governed by a central board of directors, RBI is on the whole operated with a 21-member central board of directors appointed by the Government of India in accordance with the Reserve Bank of India Act.
The Central board of directors comprise of:
- Official Directors – The governor who is appointed/nominated for a period of four years along with four Deputy Governors
- Non-Official Directors – Ten Directors from various fields and two government Official
RBI Full Form
Structure of RBI
RBI Monetary Museum in Mumbai was established by the bank under its educational programme in 2004.
The central board of directors is the main committee of the central bank. The Government of India appoints the directors for a four-year term. The board consists of a governor, and not more than four deputy governors; four directors to represent the regional boards; two – usually the Economic Affairs Secretary and the Financial Services Secretary – from the Ministry of Finance and ten other directors from various fields.
The Reserve Bank – under Raghuram Rajan’s governorship – wanted to create a post of a chief operating officer (COO), in the rank of deputy governor and wanted to re-allocate work between the five of them (four deputy governor and COO).
The bank is headed by the governor, currently Shaktikanta Das. There are four deputy governors B. P. Kanungo, Mahesh Kumar Jain, M. Rajeshwar Rao, and Michael Patra.
Two of the four deputy governors are traditionally from RBI ranks and are selected from the bank’s executive directors. One is nominated from among the chairpersons of public sector banks and the other is an economist. An Indian Administrative Service officer can also be appointed as deputy governor of RBI and later as the governor of RBI as with the case of Y.
RBI Full Form
Venugopal Reddy and Duvvuri Subbarao. Other persons forming part of the central board of directors of the RBI are Nachiket Mor, Y. C. Deveshwar, Prof Damodar Acharya, Ajay Tyagi, and Anjuly Duggal.
Executive Directors (ED) consist of M. Rajeshwar Rao, Lily Vadera, Rabi N. Mishra, Smt. Nanda S. Dave, Anil K. Sharma, S. C. Murmu, T. Rabi Sankar, Janak Raj, P Vijayakumar, Indrani Banerjee, O.P. Mall and Sudha Balakrishnan (Chief Financial Officer).
Sudha Balakrishnan, a former vice-president at National Securities Depository Limited, assumed charge as the first chief financial officer (CFO) of the Reserve Bank on 15 May 2018; she was given the rank of an executive director.
- Central Board of Directors
- Deputy Governors
- Executive Directors
- Principal Chief General Managers
- Chief General Managers
- General Managers
- Deputy General Managers
- Assistant General Managers
- Assistant Managers
- Support Staff
Branches and support bodies
The RBI has four regional representations: North in New Delhi, South in Chennai, East in Kolkata and West in Mumbai. The representations are formed by five members, appointed for four years by the central government and with the advice of the central board of directors serve as a forum for regional banks and to deal with delegated tasks from the Central Board.
It has two training colleges for its officers, viz. Reserve Bank Staff College, Chennai and College of Agricultural Banking, Pune. There are three autonomous institutions run by RBI namely National Institute of Bank Management (NIBM), Indira Gandhi Institute of Development Research (IGIDR), Institute for Development and Research in Banking Technology (IDRBT). There are also four zonal training centres at Mumbai, Chennai, Kolkata, and New Delhi.
RBI Full Form
The Board of Financial Supervision (BFS), formed in November 1994, serves as a CCBD committee to control the financial institutions. It has four members, appointed for two years, and takes measures to strength the role of statutory auditors in the financial sector, external monitoring, and internal controlling systems.
The Tarapore Committee was set up by the Reserve Bank of India under the chairmanship of former RBI deputy governor S. S. Tarapore to “lay the road map” to capital account convertibility. The five-member committee recommended a three-year time frame for complete convertibility by 1999–2000.
On 8 December 2017, Surekha Marandi, Executive Director (ED) of Reserve Bank of India, said RBI will open an office in the north-eastern state of Arunachal Pradesh
RBI Full Form
RBI Legal Framework
The Reserve Bank of India comes under the purview of the following Acts:
- Reserve Bank of India Act, 1934
- Public Debt Act, 1944
- Government Securities Regulations, 2007
- Banking Regulation Act, 1949
- Foreign Exchange Management Act, 1999
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
- Credit Information Companies(Regulation) Act, 2005
- Payment and Settlement Systems Act, 2007
Major Functions of RBI
Monetary Authority of RBI
- Formulating and implementing the national monetary policy.
- Maintaining price stability across all sectors while also keeping the objective of growth.
Regulatory and Supervisory of RBI
- Set parameters for banks and financial operations within which banking and financial systems function.
- Protect investors interest and provide economic and cost-effective banking to the public.
Foreign Exchange Management of RBI
- Oversees the Foreign Exchange Management Act, 1999.
- Facilitate external trade and development of foreign exchange market in India.
- Issues, exchanges or destroys currency and not fit for circulation.
- Provides the public adequately with currency notes and coins and in good quality.
RBI Full Form
- Promotes and performs promotional functions to support national banking and financial objectives.
- Provides banking solutions to the central and the state governments and also acts as their banker.
- Chief Banker to all banks: maintains banking accounts of all scheduled banks.
RBI Annual publications
- Annual Report – The annual report is a statutory report of the Reserve Bank of India that is released every year. This report consists of valuation and progress of the Indian economy. Overview of the economy, the working of the Reserve Bank during that year and the RBI’s projected vision and agenda for the following year along with the annual accounts of the Reserve Bank
- Report on Trend and Progress of Banking in India – This document is an assessment of the policies and progress of the financial sector for the preceding year.
- Lectures – The Reserve Bank of India has constituted three annual lectures. Two of these lectures are conducted by past Governors of the Reserve Bank and one lecture is by a noted economist.
- Report on Currency and Finance – This report is documented and presented by the staff of Reserve Bank of India bank and focusses on a particular theme and presents a detailed economic analysis of the issues related to the theme. Handbook of Statistics on the Indian Economy – This report is an important initiative by the Reserve Bank to improve data distribution. It is a resourceful storehouse of major statistical information.
- State Finances: A Study of Budgets – The report is an essential source of segregated state-wise financial data and provides an analytical data-driven conceptualisation on the fiscal position of state governments across India. These data inputs are used to analyse specific issues of relevance.
- Statistical Tables Relating to Banks in India – This annual publication contains holistic timeline data with regards to the Scheduled Commercial Banks (SCBs) of India. The report also covers the information of balance sheets and performance indicators for each SCB in India. The journal also includes segregated data sources on some essential factors relating to bank-wise, bank group-wise and state-wise level of information.
- Basic Statistical Returns – This is another data-focused yearly journal which represents complex information on the number of offices, employees, deposits and credit of Scheduled Commercial Banks in minute levels of detail such as, region-wise, state-wise and district-wise information. This information also trickles down to the population and credit requirements in each bank.
RBI Full Form
- Repo Rate Repo or repurchase rate is the benchmark interest rate at which the RBI lends money to all other banks for a short-term. When the repo rate increases, borrowing from RBI becomes more expensive and hence customers or the public bear the outcome of high-interest rates.
- Reverse Repo Rate (RRR) Reverse Repo rate is the short-term borrowing rate at which RBI borrows money from other banks. The Reserve Bank of India uses this method to reduce inflation when there is excess money in the banking system.
- Cash Reserve Ratio (CRR) is the particular share of any bank’s total deposit that is mandatory and to be maintained with the Reserve Bank of India in the form of liquid cash.
- Statutory liquidity ratio (SLR) Leaving aside the cash reserve ratio, banks are required to maintain liquid assets in the form of gold and approved securities. A higher SLR disables the banks to grant more loans.
- Bank Rate 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 4.25. 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.
- Open market operation (OMO) Open market operation is the activity of buying and selling of government securities in open market to control the supply of money in banking system. When there is excess supply of money, central bank sells government securities thereby sucking out excess liquidity. Similarly, when liquidity is tight, RBI will buy government securities and thereby inject money supply into the economy.
On 23 March 2020, Reserve Bank of India infuse Rs 1 trillion (short scale) through term repo auction, a massive OMOs (open market operations) purchase of government securities. The Reserve Bank is monitoring the financial market conditions and liquidity situation in the economy as COVID-19 pandemic in India fears of a recession.
RBI Full Form
RBI Qualitative tools
- Margin requirements Loan-to-value (LTV) is the ratio of loan amount to the actual value of asset purchased. The RBI regulates this ratio so as to control the amount a bank can lend to its customers. For example, an individual wants to buy a car using borrowed money and the car’s value is 10 lakh (US$14,000). If the LTV is set to 70% he can borrow a maximum of 700,000 (US$9,800). The RBI can decrease or increase to curb inflation or deflation respectively.
- Selective credit control Under this measure, the RBI can specifically instruct banks not to give loans to traders of certain commodities e.g. sugar, edible oil, etc. This prevents the speculation/hoarding of commodities using money borrowed from banks.
- Moral suasion Under this measure, the RBI try to persuade banks through meetings, conferences, media statements to do specific things under certain economic trends. For example, when the RBI reduces repo rate, it asks banks to reduce their base rate as well. Another example of this measure is to ask banks to reduce their non-performing assets.
RBI Full Form
RBI Payment System Initiatives
- The Reserve Bank has taken many steps towards initiating and updating secure and sustainable methods of payment systems in India to meet public requirements.
- Currently, payment methods in India consist of paper-based instruments, electronic instruments and other instruments, such as pre-paid system (e-wallets), mobile internet banking, ATM-based transactions, Point-of-sale terminals and online transactions.
- Use of paper-based instruments such as cheques and demand drafts accounts for nearly 60% of the volume of total non-cash transactions in India. These forms of payments have been steadily decreasing over a period of time due to the electronic modes of payments gaining popularity due to the comparative convenience, safety and overall efficiency.
- Magnetic Ink Character Recognition (MICR) technology was introduced by RBI in the paper-based payment method for speeding up and bringing in efficiency in the processing of cheques.
- A separate clearing system for paper-based payment method was introduced for clearing cheques of high-value ranging from rupees one lakh and above. Also, the introduction of cheque truncation (CTS) system restricts the physical movement of cheques and utilises images for enhanced secure payment processing.
The initiatives taken by the Reserve Bank in the domain of electronic payment systems are immense and vast. The types of electronic forms of payment by the RBI are as follows:
- Electronic Clearing Service (ECS) – This enables customer bank accounts to be credited with a specified value and payment on a set date. This makes EMIs, or other monthly bills hassle free.
- National Electronic Clearing Service (NECS) – This facilitates multiple advantages to beneficiary accounts with destination branches against a single debit of the account of the sponsor bank.
- Electronic Funds Transfer (EFT) – This retail funds transfer system was to enable an account holder of a bank to electronically transfer funds to another account holder with any other intermediate or participating bank.
- National Electronic Funds Transfer (NEFT) – A secure system to facilitate real-time fund transfer between individuals/corporates.
- Real Time Gross Settlement (RTGS) – A funds transfer function in which transfer of money takes place from one bank to another on a real-time basis without delaying or netting with any other transaction.
- Clearing Corporation of India Limited (CCIL) – This system is for banks, financial institutions, non- banking financial companies and primary dealers, to serve as an industry service mechanism for clearing settlement of trades in money market, government securities and foreign exchange markets.
- The RBI (Reserve Bank of India) has made changes to the Prepaid Payment Instruments (PPI) also know as e-wallets. These changes include KYC – known your customer compliance. KYC is the process of collecting user details by the service provider and verifying the same with the respective government bodies.
RBI Full Form
RBI Board for Financial Supervision
The Reserve Bank of India performs the supervisory function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India under the Reserve Bank of India (Board for Financial Supervision) Regulations, 1994.
The primary objective of BFS is to undertake consolidated supervision of the financial sector comprising Scheduled Commercial and Co-operative Banks, All India Financial Institutions, Local Area Banks, Small Finance Banks, Payments Banks, Credit Information Companies, Non-Banking Finance Companies and Primary Dealers.
RBI Full Form
The Board is constituted by co-opting four Directors from the Central Board as Members and is chaired by the Governor. The Deputy Governors of the Reserve Bank are ex-officio members. One Deputy Governor, traditionally, the Deputy Governor in charge of supervision, is nominated as the Vice-Chairman of the Board.
In April 2018, a Sub-committee of the Board for Financial Supervision was constituted, under Para 11 & 12 of the Reserve Bank of India (Board for Financial Supervision) Regulations, 1994. The Sub-committee performs the functions and exercises the powers of supervision and inspection under the Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949, in relation to Payments Banks,
Small Finance Banks, Local Area Banks, small Foreign Banks, select scheduled Urban Co-operative Banks, select Non-Banking Financial Companies and Credit Information Companies. The Sub-committee is chaired by the Deputy Governor in charge of supervision and includes the three Deputy Governors and two Directors of the Central Board as Members.
The Board is required to meet normally once every month. It deliberates on inspection reports, periodic reviews related to banking and non-banking sectors and policy matters arising out of or having relevance to the supervisory functions of the Reserve Bank.
The BFS oversees the functioning of Department of Banking Supervision (DBS), Department of Non-Banking Supervision (DNBS) and Department of Co-operative Bank Supervision (DCBS) and gives directions on regulatory and supervisory issues.
RBI Full Form
Functions of RBI
Some of the initiatives taken by the BFS include:
- Fine-tuning the supervisory processes adopted by the Bank for regulated entities;
- Introduction of off-site surveillance system to complement the on-site supervision of regulated entities;
- Strengthening the statutory audit processes of banks and enlarging the role of auditors in the supervisory process;
- Strengthening the internal defences within supervised institutions such as corporate governance, internal control and audit functions, management information and risk control systems, review of housekeeping in banks;
- Introduction of supervisory rating system for banks and financial institutions;
- Supervision of overseas operations of Indian banks, consolidated supervision of banks;
- Technical assistance programme for cooperative banks;
- Introduction of scheme of Prompt Corrective Action Framework for weak banks;
- Guidance regarding fraud risk management framework in banks;
- Introduction of risk based supervision of banks;
- Introduction of an enforcement framework in respect of banks;
- Establishment of a credit registry in respect of large borrowers of supervised institutions; and
- Setting up a subsidiary of RBI to take care of the IT requirements, including the cyber security needs of the Reserve Bank and its regulated entities, etc.
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RBI Full Form