30-07-2012, 02:37 PM
Reserve Bank of India: Functions and Working
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Overview
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.
Functions of the Reserve Bank
The functions of the Reserve Bank today can be categorised as follows:
1 Monetary policy
2 Regulation and supervision of the banking and non-banking financial
institutions, including credit information companies
3 Regulation of money, forex and government securities markets as also
certain financial derivatives
4 Debt and cash management for Central and State Governments
5 Management of foreign exchange reserves
6 Foreign exchange management—current and capital account management
Continuity with Change
The Preamble to the Reserve Bank of India Act, 1934 (the Act), under which it
was constituted, specifies its objective as “to regulate the issue of Bank notes
and the keeping of reserves with a view to securing monetary stability in India
and generally to operate the currency and credit system of the country to its
advantage”.
The objectives outlined in the Preamble hold good even after 75 years.
As evident from the multifaceted functions that the Reserve Bank performs
today, its role and priorities have, in the span of 75 years, changed in tandem
with changing national priorities and global developments. Essentially,
the Reserve Bank has demonstrated dynamism and flexibility to meet the
requirements of an evolving economy.
A core function of the Reserve Bank in the last 75 years has been the
formulation and implementation of monetary policy with the objectives of
maintaining price stability and ensuring adequate flow of credit to productive
sectors of the economy. To these was added, in more recent times, the goal of
maintaining financial stability. The objective of maintaining financial stability
has spanned its role from external account management to oversight of
banks and non-banking financial institutions as also of money, government
securities and foreign exchange markets.
Central Board of Directors
The Central Board of Directors is at the top of the Reserve Bank’s
organisational structure. Appointed by the Government under the provisions
of the Reserve Bank of India Act, 1934, the Central Board has the primary
authority and responsibility for the oversight of the Reserve Bank. It delegates
specific functions to the Local Boards and various committees.
The Governor is the Reserve Bank’s chief executive. The Governor supervises
and directs the affairs and business of the RBI. The management team also
includes Deputy Governors and Executive Directors.
The Central Government nominates fourteen Directors on the Central Board,
including one Director each from the four Local Boards. The other ten
Directors represent different sectors of the economy, such as, agriculture,
industry, trade, and professions. All these appointments are made for a period
of four years. The Government also nominates one Government official as a
Director representing the Government, who is usually the Finance Secretary
to the Government of India and remains on the Board ‘during the pleasure of
the Central Government’. The Reserve Bank Governor and a maximum of four
Deputy Governors are also ex officio Directors on the Central Board.