What is the 'Reserve Bank Of India - RBI'?

The Reserve Bank of India (RBI) is the central bank of India, which was established on April 1, 1935, under the Reserve Bank of India Act. The Reserve Bank of India uses monetary policy to create financial stability in India, and it is charged with regulating the country's currency and credit systems.

BREAKING DOWN '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, or MIBOR, serves as a benchmark for interest rate-related financial instruments in India.

The RBI was originally set up as a private entity but was nationalized in 1949. The reserve bank is governed by a central board of directors appointed by the national government. The government has always appointed the RBI's directors, and this has been the case since the bank became fully owned by the government of India as outlined by the Reserve Bank of India Act. Directors are appointed for a period of four years.

The RBI's Supervision of the Indian Financial Sector

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 nonbanking 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.

The current focus of the RBI is to continue its increased supervision of financial institutions while dealing with legal issues related to bank fraud and consolidated accounting. The RBI is also attempting to create a supervisory rating model for its banks and to cut interest rates.

The RBI and Monetary Policy

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.

RELATED TERMS
  1. Securities And Exchange Board Of ...

    Securities and Exchange Board of India - SEBI is the regulatory ...
  2. Foreign Exchange Dealers Association ...

    The Foreign Exchange Dealers Association of India (FEDAI) is ...
  3. Over-the-Counter Exchange of India ...

    The over-the-counter exchange of India (OTCEI) is an electronic ...
  4. Bank

    A bank is a financial institution licensed as a receiver of deposits. ...
  5. Mumbai Interbank Offered Rate - ...

    The Mumbai Inter-Bank Offer Rate (MIBOR) is the interest rate ...
  6. Reserve City Bank

    A reserve city bank is a bank in the U.S. located in certain ...
Related Articles
  1. Investing

    The Increasing Importance of the Reserve Bank of India

    With the Indian economy accounting for a great share of the global economy, the RBI is poised to become one of the world’s leading central banks.
  2. Investing

    Reserve Bank of India Cuts Interest Rates

    On September 29, 2015, The Reserve Bank of India cut policy interest rates (or the repo rate) by a higher-than-expected 50 basis points, to stimulate domestic demand and to lower borrowing costs.
  3. Investing

    India's $178 Billion Loan Crisis

    Indian banks have struggled with corporations for years but things may have finally come to a head.
  4. Investing

    India Remains An Emerging Market Bright Spot

    Change has finally come to India. The election of a business-friendly reformer appears to be the spark that will send Indian equities higher.
  5. Investing

    Popeyes Accepts $1.8 Billion Buyout Bid From RBI

    The latest hot rumor in the fast food sector, it turns out, was true: Restaurant Brands International (NYSE: QSR) is buying Popeyes Louisiana Kitchen (NASDAQ: PLKI). A joint press release issued ...
  6. Investing

    How India Makes Money

    India currently has the ninth largest nominal GDP (and third largest in PPP) in the world.
  7. Insights

    India Is Eclipsing China's Economy As Brightest BRIC Star

    It seems fitting that on the occasion of Diwali – the Hindu “festival of lights” – India should emerge as the brightest star in the BRIC firmament.
  8. Financial Advisor

    Emerging Markets: Why India Continues to Impress

    You can make an argument that large emerging markets are no longer emerging, unless you're talking about India.
  9. Insights

    3 Economic Challenges India Faces in 2016

    Learn why India's economy is held back by ingrained core problems that will take a generation to change despite recent favorable economic numbers.
  10. Insights

    Apple iPhones Sold in India Are 40% More Expensive (AAPL, GOOG)

    Apple prides itself on bringing new technology to the masses every year, but it may be depending on older models to drive sales in its fastest growing market.
RELATED FAQS
  1. Who decides when to print money in India?

    Find out the role of the Reserve Bank of India (RBI), and the amount of authority given to the government to issue currency ... Read Answer >>
  2. How do central banks acquire currency reserves and how much are they required to ...

    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Answer >>
  3. What is the average profit margin for a company in the banking sector?

    Learn what the average profit margin is for companies in the banking sector, along with other evaluation metrics often used ... Read Answer >>
  4. What are the 9 major financial institutions?

    There are nine major types of financial institutions. Understand the major types of financial institutions that exist and ... Read Answer >>
  5. How do mutual funds work in India?

    Find out how mutual funds work in India, including what types of funds are available, how they are structured and how they ... Read Answer >>
  6. How are investment banks regulated in the United States?

    Read about the extensive regulations placed on investment banks in the United States, beginning with the Glass-Steagall Act ... Read Answer >>
Hot Definitions
  1. Monero

    Monero is a digital currency that offers a high level of anonymity for users and their online transactions.
  2. Risk Tolerance

    Risk tolerance is the degree of variability in investment returns that an individual is willing to withstand.
  3. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  4. Initial Coin Offering (ICO)

    An Initial Coin Offering (ICO) is an unregulated means by which funds are raised for a new cryptocurrency venture.
  5. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  6. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
Trading Center