Context: The Reserve Bank of India (RBI) celebrated its 90th year in Mumbai. In this context let us understand the organisational structure and functions of Reserve Bank of India.
About Reserve Bank of India:
- 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 Board of the RBI is headed by the Governor and assisted by not more than four Deputy Governors
Functions of RBI:
- Issuing currency: RBI has the sole right to issue currency/banknotes in India. The RBI Act, 1935 also enables RBI to recommend to Central Government the denomination of bank notes, which can be of two rupees, five rupees, ten rupees, twenty rupees, fifty rupees, one hundred rupees, five hundred rupees, one thousand rupees, five thousand rupees and ten thousand rupees or other denominations not exceeding ten thousand rupees.
- Monetary Policy functions: As per the new monetary policy framework, the major objective of the RBI’s monetary policy to control the inflation.
| Inflation Target | The Central Government, in consultation with the RBI shall determine the inflation target in terms of the Consumer Price Index, once in every five years. |
| Determination of Policy Rate | o The Monetary Policy Committee has been entrusted with the statutory duty to determine the Policy Rate required to achieve the inflation target. The decision of the Monetary Policy Committee is binding on the RBI.o The Monetary Policy Committee shall consist ofa) the Governor of the RBI;b) Deputy Governor of the RBI in charge of Monetary Policy;c) One officer of the RBI to be nominated by the Central Board; andd) three persons to be appointed by the Central Government. |
- Public debt management: Manages public debt of centre and state governments and issues securities on behalf of them.
- Forex management: The RBI is entrusted with the duty of development and maintenance of foreign exchange market in India the Foreign Exchange Management Act, 1999 (‘FEMA"). RBI Intervenes in the forex market and checks large scale volatility in exchange rates.
- Lender of last resort: As a Banker to Banks, the Reserve Bank acts as the ‘lender of the last resort’. It can come to the rescue of a bank which is facing temporary liquidity problems by supplying it with much needed liquidity when no one else is willing to extend credit to that bank.
- Oversight of Payment and settlements: The Payment and Settlement Systems Act, 2007 entrust the responsibility of oversight of payment and settlement system to RBI.
- Banking Regulation & Supervision: The power to regulate and supervise banking companies has been provided by the provisions of the Banking Regulation Act, 1949 (BR Act, 1949) to the RBI.
- Consumer Protection and promotion Functions: Protection of the interests of the depositors is one of the vital mandates of the RBI. Apart from depositors, the resolution of grievances of customers who deal with its regulated entities is also important for the Reserve Bank of India.