History & Structure of Reserve Bank of India

Prior to establishment of RBI, the functions of a central bank were virtually being done by the Imperial Bank of India . RBI started its operations from April 1, 1935. It was established via the RBI act 1934, so it is also known as a statutory body. Similarly, SBI is also a statutory body deriving its legality from SBI Act 1935.

RBI did not start as a Government owned bank but as a privately held bank without major government ownership. It started with a Share Capital of Rs. 5 Crore, divided into shares of Rs. 100 each fully paid up. In the beginning, this entire capital was owned by private shareholders. Out of this Rs. 5 Crore, the amount of Rs. 4,97,8000  was subscribed by the private shareholders while Rs. 2,20,000 was subscribed by central government.

After independence, the government passed Reserve Bank (Transfer to Public Ownership) Act, 1948 and took over RBI from private shareholders after paying appropriate compensation. Thus, nationalization of RBI took place in 1949 and from January 1, 1949, RBI started working as a government owned bank.

Hilton Young Commission

Hilton-Young Commission was the Royal Commission on Indian Currency and Finance set up by British Government of India in 1920s. In 1926, this commission had recommended to the government to create a central bank in the country. On the basis of mainly this commission, the RBI act was passed.

Original headquarters of RBI

Original headquarters of RBI were in Kolkata, but in 1937, it was shifted to Shahid Bhagat Singh Marg, Mumbai.

Structure & Functions of RBI

The core structure of RBI includes one Central Board of Directors, two Assistive bodies (BFS and BPSS), four local boards, 33 departments, 19 regional offices and 9 sub-offices.

Main functions of RBI

• To work as monetary authority and implement its Monetary Policy
• To serve as issuer of bank notes
• Serve as banker to central and state governments
• Serve as debt manager to central and state governments
• Provide ways and means advances to the state governments
• Serve as banker to the banks and lender of last resort (LORL) for them
• Work as supervisor and regulator of the banking & financial system
• Management of Foreign Exchange Reserves of the country
• Support the government in development of the country

Structure and functions of Central Board of Directors in RBI

Central Board of Directors is the top decision making body in the RBI. It is made of official directors and Non-official directors.

The Governor and Deputy Governors are the official directors. There is on Governor and maximum 4 Deputy Governors; so maximum number of Official Directors in RBI’s Central Board of Directors is five. Governor and Deputy governors are appointed by Central Government. The tenure of service is maximum of 5 years or till the age of 62 whichever is earlier.

Further, there are 16 non-official directors in RBI. Out of them, there are four represent the local Boards located in Delhi, Chennai, Kolkata and Mumbai, thus representing 4 regions of India. Rest 12 are nominated by the Reserve Bank of India. These 12 personalities have expertise in various segments of Indian Economy.

The Central Board of Directors holds minimum 6 meetings every year. Out of which, at least 1 meeting every quarter is held. Though, typically the committee of the central board meets every week (Wednesday).

Assistive bodies in RBI

There are two assistive bodies for Central Board of Directors viz. Board of Financial Supervision (BFS) and Board for Payment and Settlement Systems (BPSS). Both of these are chaired by RBI Governor.

Local Boards

There are four local boards of RBI located in Chennai, Kolkata, Mumbai and New Delhi. These four local boards represent four regions of the country. Members and directors of local boards are appointed by central government for four-year terms. Each of these local boards consists of 5 members who represent regional interests, and the interests of co-operative and indigenous banks.

Departments of RBI

Reserve Bank of India has 33 departments which focus on policy issues in the Reserve Bank’s functional areas and internal operations. These are as follows:

1. Consumer Education and Protection Department
2. Corporate Strategy and Budget Department
3. Department of Banking Regulation
4. Department of Banking Supervision
5. Department of Communication
6. Department of Cooperative Bank Regulation
7. Department of Cooperative Bank Supervision
8. Department of Corporate Services
9. Department of Currency Management
10. Department of Economic and Policy Research
11. Department of External Investments and Operations
12. Department of Government and Bank Accounts
13. Department of Information Technology
14. Department of Non-Banking Regulation
15. Department of Non-Banking Supervision
16. Department of Payment and Settlement Systems
17. Department of Statistics and Information Management
18. Financial Inclusion and Development Department
19. Financial Markets Operation Department
20. Financial Markets Regulations Department
21. Financial Stability Unit
22. Foreign Exchange Department
23. Human Resource Management Department
24. Inspection Department
25. Internal Debt Management Department
26. International Department
27. Legal Department
28. Monetary Policy Department
29. Premises Department
30. Rajbhasha Department
31. Risk Monitoring Department
32. Secretary’s Department
33. Central Vigilance Cell

Regional and sub-offices of RBI

There are 19 regional offices and 9 sub-offices of RBI. Most of the 19 regional offices are located in state capitals.

Training centres of RBI

The training centres of RBI are as follows:

• The Reserve Bank Staff College, Chennai
• College of Agricultural Banking at Pune
• Zonal Training Centres, located at regional offices, train non-executive staff.
• Apart from that following are RBI funded Research Institutions:
• National Institute of Bank Management (NIBM) : Pune,
• Indira Gandhi Institute of Development Research (IGIDR) : Mumbai
• Institute for Development and Research in Banking Technology (IDRBT) : Hyderabad.

RBI’s Subsidiaries

RBI has following subsidiaries

• Deposit Insurance and Credit Guarantee Corporation, DICGC
• National Housing Bank
• Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL)
• NABARD

Board for Financial Supervision (BFS)

Board of Financial Supervision (BFS) is one of the two assistive bodies for Central Board of Directors of RBI, other being Board for Payment and Settlement Systems .

It was established in 1994 and its main function is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. It is chaired by RBI Governor. One of the deputy governors of RBI serves as Vice Chairman BFS. BFS meets typically every month.

Functions of BFS

BFS is working as the main guiding force behind RBI’s regulatory and supervisory initiatives. The RBI carries out its functions related to financial supervision under the guidance of BFS. BFS Regulates and supervises commercial banks, Non-Banking Finance Companies (NBFCs), development finance institutions, urban co-operative banks and primary dealers. Some typical functions are:

• 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.

Board for Payment and Settlement Systems (BPSS)

BPSS was established in 2005 to regulate and supervise the payment and settlement systems. It is one of the two assistive bodies to Central Board of Directors in RBI (other being BFS). This is also chaired by the Governor of RBI and its members are all the four Deputy Governors and two Non-Official Directors of the Central Board.

Key Functions of BPSS are:

• Lay down policies relating to the regulation and supervision of all types of payment and settlement systems.
• Set standards for existing and future systems
• Approve criteria for authorization of payment and settlement systems
• Determine criteria for membership to these systems, including continuation, termination and rejection of membership.

With regard to the payment and settlement systems, BPSS is the highest policy making body in the country. Electronic, non-electronic, domestic and cross-border payment and settlement systems which affect the domestic transactions are regulated by BPSS.