RBI

 Reserve Bank of India : RBI

Important questions to understand RBI

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The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.

The Central Office is where the Governor sits and where policies are formulated.

Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India.

the Reserve Bank of India describes the basic functions of the Reserve Bank as:

    "to regulate the issue of Bank notes and 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; to have a modern monetary policy framework to meet the challenge of an increasingly complex economy, to maintain price stability while keeping in mind the objective of growth." 

 Central Board

The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.

    Appointed/nominated for a period of four years

    Constitution:

        Official Directors

            Full-time : Governor and not more than four Deputy Governors

        Non-Official Directors

            Nominated by Government: ten Directors from various fields and two government Official

            Others: four Directors - one each from four local boards

 Local Boards

    Constituted for Western Area, Eastern Area, Northern Area and Southern Area.

    Consist of five members each.

    Members appointed by the Central Government.

    Member shall hold office for a term of four years.

Functions : To advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks; to perform such other functions as delegated by Central Board from time to time. 

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.

Objective

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.

Constitution

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.

BFS Meetings

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.

Functions

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.

Acts administered by Reserve Bank of India

    Reserve Bank of India Act, 1934

    Public Debt Act, 1944/Government Securities Act, 2006

    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 (Chapter II)

    Credit Information Companies(Regulation) Act, 2005

    Payment and Settlement Systems Act, 2007

        Payment and Settlement Systems Act, 2007 As Amended up to 2019

        Payment and Settlement Systems Regulations, 2008 As Amended up to 2022

    Factoring Regulation Act, 2011

II. Other relevant Acts to define functionality 

    Negotiable Instruments Act, 1881

    Bankers' Books Evidence Act, 1891

    State Bank of India Act, 1955

    Companies Act, 1956/ Companies Act, 2013

    Securities Contract (Regulation) Act, 1956

    State Bank of India Subsidiary Banks) Act, 1959

    Deposit Insurance and Credit Guarantee Corporation Act, 1961

    Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970

    Regional Rural Banks Act, 1976

    Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980

    National Bank for Agriculture and Rural Development Act, 1981

    National Housing Bank Act, 1987

    Recovery of Debts Due to Banks and Financial Institutions Act, 1993

    Competition Act, 2002

    Indian Coinage Act, 2011 : Governs currency and coins

    Banking Secrecy Act

    The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003

    The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993

 Monetary Authority: to Monitor all the aspects 

    Formulates, implements and monitors the monetary policy.

    Objective: maintaining price stability while keeping in mind the objective of growth.

One & Only Regulator and supervisor of the financial system in India:

    Prescribes broad parameters of banking operations within which the country's banking and financial system functions.

    Objective: maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public.

Important International Relationship 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 foreign exchange market in India.

Issuer of currency: Monitored by Reserve Bank of India

    Issues, exchanges and destroys currency notes as well as puts into circulation coins minted by Government of India.

    Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.

Developmental role for RBI

    Performs a wide range of 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 payment and settlement system

Reserve Bank of India Related Functions

    Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.

    Banker to banks: maintains banking accounts of all scheduled banks.

 RBI is having Nation wide Offices

    Has 27 regional offices, most of them in state capitals and 04 Sub-offices.

Training Establishments

Has four training establishments

    Three, namely, RBI Academy, College of Agricultural Banking and Reserve Bank of India Staff College are part of the Reserve Bank.

    Other autonomous, such as, Institute for Development and Research in Banking Technology (IDRBT)