Reserve Bank of India (RBI) was set up in 1935 under the RBI Act 1934 as a private bank with two extra functions of regulation and control of banks and to act as a banker to the government. RBI was set up under the recommendations of the Hilton Young Commission. Later in 1949 RBI was nationalised and started to act as the central bank of the country.
Central Board of RBI
The central board of directors is the main committee of the central bank. The Board of Reserve Bank of India consists of a governor, and not more than four deputy governors, four directors to represent the regional boards, two persons from finance ministry (one is financial services secretary and another is economic affairs secretary) and 10 other directors from various fields. There are total 21 members in the central board of RBI. The Governor and four deputy governors are as:
In addition to being the central monetary authority, RBI performs various functions, as follow:
As a banker
RBI acts as a banker to the government and banks i.e. banks have a current account with the RBI. General Public is not eligible to open an account with the RBI, only the president of India can open an account with the RBI.
Currency printing and distribution
As RBI is the monetary authority of the country, it is tasked with printing and circulation of money. All the currency notes other than rupee one note are printed by RBI with the signatures of RBI Governor on them, while the one rupee note is signed by Finance Secretary. Other than notes all the coins are minted by the central government while these are also circulated by the RBI.
As a Regulator
Being the central bank of the country, RBI regulates all the banks and non-banking financial institutions of the country.
As monetary authority
The RBI is tasked to control the money supply in the economy, to control inflation, to boost demand etc, all this is done by the RBI with its monetary policy which is announced at an interval of every two months. The current monetary policy of RBI is about inflation targeting in the range of 2 to 6 per cent and this range will be revised after every five years. If RBI fails to control inflation in this range for two successive quarters, it has to present a report to the government while mentioning reasons for its failure and remedies to be taken.
As Forex Regulator
When we need to exchange our currency with some other country’s currency, we can do it in the Forex Market. RBI maintains foreign exchange reserves to meet out with the need for the dollar to import from outside and for the stability of India rupee with other currencies. If foreign exchange reserves are not maintained, the balance of payment crisis is bound to occur. Currently, the foreign exchange reserves of India stands at 400$ billion as on August 24, 2018.
Also acts as an agent of the Government of India in the IMF (International Monetary Fund).
Click here to read about Monetary Policy.