The Reserve Bank of India was established on
April 1, 1935 in accordance with the provisions of the Reserve
Bank of India Act, 1934. The Central Office
of the Reserve Bank was initially established in Calcutta but was permanently
moved to Mumbai in 1937. The Central Office is where the Governor sits and where
policies are formulated. Though originally
privately owned, since nationalisation in 1949, the Reserve Bank is fully owned
by the Government of India. The
Preamble of the Reserve Bank of India describes the basic functions of the Reserve
Bank as: "...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."
The Reserve Bank's affairs are
governed by a central board of directors. The board is appointed by the Government
of India in keeping with the Reserve Bank of India Act. Functions
: General superintendence and direction of the Bank's affairs - One each for the four
regions of the country in Mumbai, Calcutta, Chennai and New Delhi
- Membership:
- consist
of five members each
- appointed by the Central Government
- for
a term of four years
Functions
: To advise the Central Board on local matters and to represent territorial and
economic interests of local cooperative and indigenous banks; to perform such
other functions as delegated by Central Board from time to time.
The Reserve Bank of India
performs this function under the guidance of the Board for Financial Supervision
(BFS). The Board was constituted in November 1994 as a committee of the Central
Board of Directors of the Reserve Bank of India. Objective Primary
objective of BFS is to undertake consolidated supervision of the financial sector
comprising commercial banks, financial institutions and non-banking finance companies.
Constitution 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. BFS meetings The
Board is required to meet normally once every month. It considers inspection reports
and other supervisory issues placed before it by the supervisory departments. BFS
through the Audit Sub-Committee also aims at upgrading the quality of the statutory
audit and internal audit functions in banks and financial institutions. The audit
sub-committee includes Deputy Governor as the chairman and two Directors of the
Central Board as members. The BFS oversees
the functioning of Department of Banking Supervision (DBS), Department of Non-Banking
Supervision (DNBS) and Financial Institutions Division (FID) and gives directions
on the regulatory and supervisory issues. Functions Some
of the initiatives taken by BFS include: - restructuring
of the system of bank inspections
- introduction of off-site
surveillance,
- strengthening of the role of statutory auditors
and
- strengthening of the internal defences of supervised
institutions.
The Audit Sub-committee
of BFS has reviewed the current system of concurrent audit, norms of empanelment
and appointment of statutory auditors, the quality and coverage of statutory audit
reports, and the important issue of greater transparency and disclosure in the
published accounts of supervised institutions. Current
Focus - supervision of financial institutions
- consolidated
accounting
- legal issues in bank frauds
- divergence
in assessments of non-performing assets and
- supervisory
rating model for banks.
Umbrella Acts Acts
governing specific functions
- Public Debt Act, 1944/Government Securities Act (Proposed):
Governs government debt market
- Securities Contract (Regulation)
Act, 1956: Regulates government securities market
- Indian
Coinage Act, 1906:Governs currency and coins
- Foreign
Exchange Regulation Act, 1973/Foreign
Exchange Management Act, 1999: Governs trade and foreign
exchange market
- "Payment and Settlement Systems Act, 2007: Provides for regulation and supervision of payment systems in India"
Acts
governing Banking Operations - Companies
Act, 1956:Governs banks as companies
- Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1970/1980: Relates to nationalisation of banks
- Bankers'
Books Evidence Act
- Banking Secrecy Act
- Negotiable
Instruments Act, 1881
Acts
governing Individual Institutions - State
Bank of India Act, 1954
- The Industrial Development Bank
(Transfer of Undertaking and Repeal) Act, 2003
- The Industrial
Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993
- National
Bank for Agriculture and Rural Development Act
- National
Housing Bank Act
- Deposit Insurance and Credit Guarantee
Corporation Act
Monetary Authority:
- Formulates, implements and monitors the monetary policy.
- Objective: maintaining price stability and ensuring adequate
flow of credit to productive sectors.
Regulator
and supervisor of the financial system: - Prescribes
broad parameters of banking operations within which the country's banking and
financial system functions.
- Objective: maintain public
confidence in the system, protect depositors' interest and provide cost-effective
banking services to the public.
Manager
of Foreign Exchange - Manages the Foreign
Exchange Management Act, 1999.
- Objective: to facilitate
external trade and payment and promote orderly development and maintenance of
foreign exchange market in India.
Issuer
of currency: - Issues and exchanges
or destroys currency and coins not fit for circulation.
- Objective:
to give the public adequate quantity of supplies of currency notes and coins and
in good quality.
Developmental
role - Performs a wide range of promotional functions
to support national objectives.
Related
Functions - Banker to the Government:
performs merchant banking function for the central and the state governments;
also acts as their banker.
- Banker to banks: maintains banking
accounts of all scheduled banks.
Has six training establishments
- Three, namely, College of Agricultural
Banking, Bankers Training College and Reserve Bank of India Staff College are
part of the Reserve Bank
- Others are autonomous, such as,
National Institute for Bank Management, Indira Gandhi Institute for Development
Research (IGIDR), Institute for Development and Research in Banking Technology
(IDRBT)
For details on training
establishments, please check their websites links for which are available in Other
Links. Fully
owned: National Housing Bank(NHB), Deposit Insurance and Credit Guarantee Corporation
of India(DICGC), Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL)
Majority stake: National Bank for Agriculture
and Rural Development (NABARD)
The Reserve Bank of India has recently divested its stake in State Bank of India to the Government of India. |