RESERVE BANK OF INDIA (RBI) DETAIL:
The central bank ofthe country is the Reserve Bank of India (RBI). Kindly Take Note: Reserve Bank of In¬dia (RBI) is the central bank of the country and is different from Central Bank ofIndia. It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. The share capital was divided into shares ofRs. 100 each fully paid which was entirely oWIled by private shareholders in the begining. The Government held shares of nominal value of Rs. 2,20,000.
Reserve Bank ofIndia was nationalised in the year 1949. The general superintendence and direction ofthe Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Goverl'lment official from the Ministry of Finance. ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central dovernment to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each appointed for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks.
The Reserve Bank of India Act, 1934 was com¬menced on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank.
The Bank was constituted for the need of following:
• To regulate the issue of banknotes
• To maintain reserves with 'a view to securing mon¬etary stability and
• To operate the credit and currency system of the counfry to its advantage.
Functions of Reserve Bank of India
The Reserve Bank of India Act of 1934 entrust all the important functions of a central bank.
Bank of Issue
Under Section 22 of the Reserve Bank 'of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins allover the country is un¬dertaken by the Reserve Bank as agent of the Govern¬ment. The Reserve Bank has a separate Issue Depart¬ment which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Depart¬ment are kept separate from those of the Banking De¬partment. Originally, the assets of the Issue Depart¬ment were to consist of not less than two-fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not less than Rs 40 crores in value. The remaining three-fifths of the assets might be held in rupee coins, Government of India rupee securities, eligible bills of exchange and promissory notes pay¬able in India. Due to the exigencies of the Second World War and the post-warperiod, these provisions were con¬sIderably modified. Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange reserves of Rs. 200 crores, of which at least Rs. 115 crores should be in gold. The system as it exists today is known as the minimum reserve system. The assets of the Issue department against which bank notes are issued consists of the following, namely,
(1) gold coins and bullions
(2) (oreign securities
(3) rupee coins
(4) goverment of india rupees securities, and
(5) the bills of exchange and promissory notes payable in india, which are eligible for purchase by the bank,.
Banker to Government
The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser~ The Reserve Bank is agent of Central Govern¬ment and of all State Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, via. to keep the cash balances as deposits free of interest, to receive and to make payments on behalf of the Gov¬ernment and to .carry out their exchange remittances and other banking operations. The Reserve Bank of India helps the Government - both the Union and the States to float new loans and to manage public debt. The Bank mak~s ways and means advances to the Governments for 90 days. It makes loans and advances to the States and local authorities. It acts as adviser to the Government on all monetary and banking mat¬ters.
The Reserve Bank of Inaia acts as the bankers' bank. According to the provisions of the Banking Com¬panies Act of 1949, every scheduled bank was required to maintain with the Reserve Bank a cash balance equivalent to• 5% of its demand liabilites and 2 per cent of its time liabilities in India. By an amendment.of 1962, the distinction between demand and time li¬abilities was abolished and banks have been asked to keep cash reserves equal to 3 per cent of their aggre¬gate deposit liabilities. The minimum cash require¬ments can be changed by the Reserve Bank of India.
The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible securities or get financial accommodation in times of need or strin¬gency by rediscounting bills of exchange. Since commercial banks can always expect the Reserve Bank of India to came their help in times of banking crisis the Reserve Bank becomes not only the banker's bankbut also the lender of the last resort.
Controller of Credit
The Reserve Bank ofIndia is the controller of credit i.e. it has the power to influence the volume of credit
. created by banks in India. It can do so through chang¬ing the Bank rate or through open market operations. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of se¬curities. Since 1956, selective controls of credit are in¬creasingly being used by the Reserve Bank.
The Reserve Bank ofIndia is armed with many more powers to control the Indian money market. Every bank has to get a licence from the Reserve Bank of India to do banking business within India, the license can be cancelled by the Reserve Bank if certain stipulated con¬ditions are not fulfilled. Every bank will have to get the permission of the Reserve Bank before it can open a new branch .. Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail. its as¬sets and liabilities. This power of the Bai:1k to call for information is also intended to give it effective control' of the credit system. The Reserve Bank has also the power to inspect the accounts of any commercial bank,
As supreme banking authority in the country, the Reserve Bank of India, therefore, has the following powers:
(a) It holds the cash reserves of all the scheduled banks.
(b) It controls the credit operations of banks through quantitative and qualitative controls.
(c) It controls the banking system through the sys¬tem of licensing, inspection and callillg for information.
(d) It acts as the lender of the last resort by provid¬ing rediscount facilities to scheduled banks.
Custodian of Foreign Reserves
The Reserve Bank of India has the responsibility to maintain the official rate of exchange. According to the Reserve Bank. of India Act of 1934, the Bank was required to buy and sell at fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 the Bank was able to maintain the exchange rate fixed at Ish.6d. though there were periods of extreme pressure in favour of or against the rupee. After India became a member of the International Monetary Fund in 1946, the Re¬serve Bank has the responsibility of maintaining fixed exchange rates with all other member countries of the LM.F Besides maintaining the .rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India's reserve of international currencies. The vast ster¬ling balances were acquired and managed by the Bank Further. the RBI has the responsibility of administer¬ing the exchange controls of the country.
