The Reserve Bank of India, (abbr. RBI), is the central bank of India, regulatory body for the Indian banking system and Indian currency. Owned by the Ministry of Finance, Government of the Republic of India, it is responsible for the control, issue, and supply of the Indian rupee. It also manages the country's main payment systems.
The RBI, along with the Indian Banks' Association, established the National Payments Corporation of India to promote and regulate the payment and settlement systems in India. Bharatiya Reserve Bank Note Mudran (BRBNM) is a specialised division of RBI through which it prints and mints Indian currency notes (INR) in two of its currency printing presses located in Mysore (Karnataka; Southern India) and Salboni (West Bengal; Eastern India).[5] Deposit Insurance and Credit Guarantee Corporation was established by RBI as one of its specialized division for the purpose of providing insurance of deposits and guaranteeing of credit facilities to all Indian banks.
Until the Monetary Policy Committee was established in 2016,[6] it also had full control over monetary policy in the country.[7] It commenced its operations on 1 April 1935 in accordance with the Reserve Bank of India Act, 1934.[8] The original share capital was divided into shares of 100 each fully paid.[9] The RBI was nationalised on 1 January 1949, almost a year and a half after India's independence.[10]
The overall direction of the RBI lies with the 21-member central board of directors, composed of: the governor; four deputy governors; two finance ministry representatives (usually the Economic Affairs Secretary and the Financial Services Secretary); ten government-nominated directors; and four directors who represent local boards for Mumbai, Kolkata, Chennai, and Delhi. Each of these local boards consists of five members who represent regional interests and the interests of co-operative and indigenous banks.
It is a member bank of the Asian Clearing Union. The bank is also active in promoting financial inclusion policy and is a leading member of the Alliance for Financial Inclusion (AFI). The bank is often referred to by the name "Mint Street".[11]
Preamble
The preamble of the Reserve Bank of India describes the basic functions of the reserve bank as:[12]
"...to regulate the issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage; to have a modern monetary policy framework to meet the challenge of an increasingly complex economy, to maintain price stability while keeping in mind the objective of growth." —
History
The Hilton Young Commission (1928), which laid the groundwork for the Reserve Bank of India Act, 1934, considered Dr. B. R. Ambedkar's recommendations. His advocacy for a managed currency system and an independent central bank to regulate credit and control inflation influenced the RBI's establishment in 1935.
Dr. B. R. Ambedkar was critical of British colonial financial policies, particularly the instability caused by the silver standard. He proposed a stable monetary framework and emphasised the need for financial inclusion, ensuring equitable access to banking services. His economic principles continue to influence India's financial policies and central banking regulations.
The Reserve Bank of India was established[13] in 1934, under the Reserve Bank of India Act.[14] Though privately owned initially, it was nationalised in 1949 and since then fully owned by the Ministry of Finance, Government of India (GoI).
1935–1949
The Reserve Bank of India was founded on 1 April 1935 to respond to economic troubles after the First World War.[15]
Structure
The central board of directors is the main committee of the central bank. The Government of India appoints the directors for a four-year term. The board consists of a governor, and not more than four deputy governors; four directors to represent the regional boards;[45] two – usually the Economic Affairs Secretary and the Financial Services Secretary – from the Ministry of Finance and ten other directors from various fields. The Reserve Bank – under Raghuram Rajan's governorship – wanted to create a post of a chief operating officer (COO), in the rank of deputy governor and wanted to re-allocate work between the five of them (four deputy governor and COO).[46][47]
Two of the four deputy governors are traditionally from RBI ranks and are selected from the bank's executive directors. One is nominated from among the chairpersons of public sector banks and the other is an economist. An Indian Administrative Service officer can also be appointed as deputy governor of RBI and later as the governor of RBI as with the case of Y. Venugopal Reddy and Duvvuri Subbarao. Other persons forming part of the central board of directors of the RBI are Revathi Iyer, Sachin Chaturvedi, Satish Kashinath Marathe, Swaminathan Gurumurthy, Anand Gopal Mahindra, Venu Srinivasan, Pankaj Ramanbhai Patel, Ravindra H. Dholakia, Ajay Seth, and Vivek Joshi.
Branches and support bodies
The RBI has four regional representations: North in New Delhi, South in Chennai, East in Kolkata and West in Mumbai. The representations are formed by five members, appointed for four years by the central government and with the advice of the central board of directors serve as a forum for regional banks and to deal with delegated tasks from the Central Board.[56]
RBI has 31 branches in India. Mostly all are in Capital cities, exceptions are the Kanpur, Nagpur and Ahmedabad Reserve Bank branches. Kanpur office was established in 1935 as one of the five original branch offices, Nagpur office was established in 1956, while the Ahmedabad office was established in 1950.
It has 3 training colleges for its officers, viz. Reserve Bank Staff College Chennai, Reserve Bank of India Academy Mumbai, and Reserve Bank of India College of Agricultural Banking Pune. There are three autonomous institutions run by RBI namely National Institute of Bank Management (NIBM), Indira Gandhi Institute of Development Research (IGIDR), Institute for Development and Research in Banking Technology (IDRBT).[57] There are also four zonal training centres at Mumbai, Chennai, Kolkata, and New Delhi.
The Board of Financial Supervision (BFS), formed in November 1994, serves as a CCBD committee to control the financial institutions.
Subsidiaries
Indira Gandhi Institute of Development Research
Indira Gandhi Institute of Development Research is an advanced research institution established by the RBI and a deemed to be university
Bharatiya Reserve Bank Note Mudran
BRBNM was established by RBI on 3 February 1995 to enable RBI to bridge the gap between maintain, demand and supply of Indian rupee notes in the country.
Deposit Insurance and Credit Guarantee Corporation
Deposit Insurance and Credit Guarantee Corporation was established by RBI for the purpose of providing insurance of deposits and guaranteeing of credit facilities to all Indian banks.
Reserve Bank of India Information Technology
It has been set up by RBI to serve its
Functions
The central bank of any country executes many functions such as overseeing monetary policy, issuing currency, managing foreign exchange, working as a bank for government and as a banker of scheduled commercial banks. It also works for overall economic growth of the country. The purposes for which the RBI has been established as India's central bank has been spelt out in the preamble to the RBI Act:[67] i) "to regulate the issue of banknotes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage; and
(ii) that it is essential to have a modern monetary policy framework to meet the challenge of an increasingly complex economy and the primary objective of the monetary policy is to maintain price stability while keeping in mind the objective of growth" ...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.
Financial supervision
The primary objective of RBI is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions, and non-banking finance companies.
The board is constituted by co-opting four directors from the Central Board as members for a term of two years and is chaired by the governor. The deputy governors of the reserve bank are ex-officio members. One deputy governor, usually the deputy governor in charge of banking regulation and supervision, is nominated as the vice-chairman of the board.
Demonetisation
2016 demonetisation
On 8 November 2016, the Government of India announced the demonetisation of all ₹ 500 and ₹ 1,000 banknotes of the Mahatma Gandhi Series despite being warned by the Reserve Bank of India (RBI).[84][85] The government claimed that the action would curtail the shadow economy and crack down on the use of illicit and counterfeit cash to fund illegal activity and terrorism.[86][87]
The Reserve Bank of India laid down a detailed procedure for the exchange of the demonetised banknotes with new ₹ 500 and ₹ 2,000 banknotes of the Mahatma Gandhi New Series and ₹ 100 banknotes of the preceding Mahatma Gandhi Series
Policy rates and reserve ratios
Repo rate
Repo (repurchase) rate also known as the benchmark interest rate is the rate at which the RBI lends money to the commercial banks for a short-term (a maximum of 90 days). When the repo rate increases, borrowing from RBI becomes more expensive. If RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate similarly, if it wants to make it cheaper for banks to borrow money it reduces the repo rate. If the repo rate is increased, banks can't carry out their business at a profit whereas the very opposite happens when the repo rate is cut down. Generally, repo rates are cut down whenever the country needs to progress in banking and economy.
If banks want to borrow money (for short term, usually overnight) from RBI then banks have to charge this interest rate. Banks have to pledge government securities as collateral. This kind of deal happens through a re-purchase agreement. If a bank wants to borrow, it has to provide government securities at least worth ₹ 1 billion (could be more because of margin requirement which is 5%–10% of loan amount) and agree to repurchase them at inr 1070000000.0000001 at the end of borrowing period. So the bank has paid inr 65000000 as interest. This is the reason it is called repo rate.
The government securities which are provided by banks as collateral can not come from SLR quota (otherwise the SLR will go below 19.5% of NDTL and attract penalties).
To curb inflation, the RBI increases repo rate which will make borrowing costs for banks. Banks will pass this increased cost to their customers which make borrowing costly in the whole economy. Fewer people will apply for loans and aggregate demand will be reduced. This will result in inflation coming down. The RBI does the opposite to fight deflation.
Qualitative tools
Margin requirements
Loan-to-value (LTV) is the ratio of loan amount to the actual value of asset purchased.
The RBI regulates this ratio so as to control the amount a bank can lend to its customers. For example, an individual wants to buy a car using borrowed money and the car's value is ₹1 million. If the LTV is set to 70% he can borrow a maximum of ₹700,000.
The RBI can decrease or increase to curb inflation or deflation respectively.
Selective credit control
Under this measure, the RBI can specifically instruct banks not to give loans to traders of certain commodities e.g. sugar, edible oil, etc. This prevents the speculation/hoarding of commodities using money from banks.
Moral suasion
Under this measure, the RBI try to persuade banks through meetings, conferences, media specific things under certain economic trends. For example, when the RBI reduces repo rate, it asks banks to reduce their base rate as well. Another example of this measure is to ask banks to reduce their non-performing assets.
RTGS and NEFT transactions' charges removal
RBI decided to remove charges on RTGS (Real Time Gross Settlement System) and NEFT (National Electronic Funds Transfer).[119]
Regulation of variable pay of bank management
In November, RBI introduced a set of draft guidelines to regulate the variable pay of CEOs and top management at private banks. The new rules are in line with the Sound Compensation Practices issued by the Financial Stability Board in April 2009. The rules will apply to CEOs, wholetime directors, and material risk takers at private banks, small finance banks and domestic executives of foreign banks. As per the new rules at least 50% of the pay should be based on individual, unit, business and firm wide performance evaluation which will be capped at 300% of the fixed pay. In case of variable pay above 200% then at least 50% of this amount should be via non-cash instruments. Share linked instruments are included as part of variable pay. Guaranteed bonus should not be part of the compensation package except in case of joining bonus. The RBI also has put clauses in place to clawback/malus in case of deteriorating performance. The bank shall identify a representative set of conditions when the recovery clause for clawback /malus can be invoked.[120]
Publications
A report titled Trend and Progress of Banking in India is published annually, as required by the Banking Regulation Act, 1949. The report sums up trends and developments throughout the financial sector.[121] Starting in April 2014, the Reserve Bank of India publishes bi-monthly policy updates.[122]
Committees set up by RBI
KV Kamath Committee
In August 2020, RBI set up a five membered Committee under the chairmanship of KV Kamath, the former CEO of the ICICI bank in order to make recommendations on the norm for resolution of COVID-19 related stressed loans. In order to restructure the loans up to ₹150 billion, the expert Committee was tasked with coming up with a sector specific plan for successful resolution of the stressed loans. The parameters were to include aspects related to leverage, liquidity and debt serviceability.[123]
Attempt to caution customers against virtual currencies
In April 2018, RBI banned banks from supporting crypto transactions after cases of fraud through virtual currencies were reported. However, the Supreme Court struck down the ban in March 2020. Among the reasons cited was that cryptocurrencies were not illegal though unregulated in India.[124]
On June 30, 2025, the RBI directed all banks to use the Financial Fraud Risk Indicator (FRI), a tool developed by the Department of Telecommunications. The FRI flags mobile numbers linked to fraud in real time, helping banks prevent online financial scams.[125]
Training academies
The 3 training colleges of the Reserve Bank of India, train the officers of the Reserve Bank of India, and the banking industry.[129]
Research units
- National Institute of Bank Management
- Institute for Development and Research in Banking Technology
- Indira Gandhi Institute of Development Research
- Indian Institute of Bank Management
All India financial institutions separated from Reserve Bank of India
Regulatory bodies:[130]
- Export-Import Bank of India
- National Bank for Agriculture and Rural Development
- Small Industries Development Bank of India
- National Housing Bank
International collaboration
Project Nexus
The Bank for International Settlements signed an agreement with Central Bank of Malaysia, Bank of Thailand, Bangko Sentral ng Pilipinas, Monetary Authority of Singapore, and the Reserve Bank of India on 30 June 2024 as founding member of Project Nexus, a multilateral international initiative to enable retail cross-border payments. Bank Indonesia involved as a special observer. The platform, which is expected to go live by 2026, will interlink domestic fast payment systems of the member countries.[131]
See also
- Inflation in India
- Financial risk management
- Risk management
- Consumer leverage ratio
- Core inflation
- Open market operation
- Dot-com bubble
- 2008 financial crisis
- Free banking
- Gold standard
- Government debt
- Digital rupee
- Cost-of-living index
- Wholesale price index
- Consumer price index
- Sovereign Gold Bond
Further reading
- S. L. N. Simha. History of the Reserve Bank of India, Volume 1: 1935–1951. RBI. 1970. ISBN 81-7596-247-X. (2005 reprint PDF)
- Reserve Bank of India: Functions and Working. RBI. 2005.(2005 reprint PDF)
- G. Balachandran. The Reserve Bank of India, 1951–1967. Oxford University Press. 1998. ISBN 0-19-564468-9. (PDF)
- A. Vasudevan et al. The Reserve Bank of India, Volume 3: 1967–1981. RBI. 2005. ISBN 81-7596-299-2. (PDF)
- Roy, Tirthankar (2023). The Reserve Bank of India: Volume 5, 1997–2008. Vol. 5. Cambridge University Press
- Cecil Kisch: Review "The Monetary Policy of the Reserve Bank of India" by K. N. Raj. In: The Economic Journal. Vol. 59, No. 235 (Sep. 1949), pp. 436–438.
- Findlay G. Shirras: The Reserve Bank of India. In The Economic Journal. Vol. 44, No. 174 (Jun. 1934), pp. 258–274.
External links
References
- About Us - Reserve Bank of India^
- Revenue secretary Sanjay Malhotra appointed new RBI governor The Times of India, 9 December 2024^
- Reserve Bank of India – Weekly Statistical Supplement Reserve Bank of India, retrieved 2025-02-01