The Reserve Bank of India is India’s central bank and is wholly owned by the Government of India. Established on April 1, 1935, the RBI’s central office is located in India’s commercial capital of Mumbai.
Oversight of the Reserve Bank of India (RBI) is provided by the central board of directors, which includes the bank’s governor, a maximum of four deputy governors and a few directors of relevant local boards. The central board delegates specific functions through its committees and sub-committees, including: the committee of central board, which oversees current business of the central bank; the board for financial supervision, which regulates and supervises commercial banks, finance companies and financial institutions; and the board for payment and settlement systems.
The governor of the RBI is its chief executive. The current governor is Shaktikanta Das, who was appointed to the office in December 2018.
Main Function of the Reserve Bank of India
The main functions of the RBI include:
- Monetary authority: formulates, implements and monitors India’s monetary policy, the main objectives of which are maintaining price stability, ensuring adequate flow of credit to productive sectors, and financial stability
- Issuer of currency: issues currency and coins, and exchanges or destroys currency notes and coins unfit for circulation
- Banker and debt manager to government of India: performs merchant banking functions for central and state governments, and also acts as their banker; determines how best to raise money in debt markets to help the government finance its requirements
- Banker to banks: enables clearing and settlement of inter-bank transactions, maintains banks’ accounts for statutory reserve requirements and acts as lender of last resort
- Regulator and supervisor of the financial system: protects the interests of depositors, facilitates orderly development and conduct of banking operations, and maintains financial stability through preventive and corrective measures.
- Manager of foreign exchange: regulates transactions related to the external sector, enables development of the foreign exchange market (forex), ensures smooth functioning of the domestic forex market, and manages India’s foreign currency assets and gold reserves
- Regulator and supervisor of payment and settlement systems
- Maintaining financial stability: an explicit objective of the RBI since the early 2000s
- Development: ensures credit availability to productive economic sectors, establishes institutions to develop India’s financial infrastructure, expands access to affordable financial services and promotes financial education and literacy
The Bottom Line
The RBI has efficiently managed the monetary policy, financial system and currency of the world’s largest democracy and second most populous nation. With the Indian economy steadily accounting for a greater share of the global economy, the RBI will continue to grow in stature as one of the world’s leading central banks.
(For related reading, see: The Regulations That Govern Banking in India.)