The Reserve Bank of India (RBI) is the central bank of the country and the main authority for money and banking. It controls the supply of money, issues currency and regulates all banks. Facts about its history, headquarters and functions are asked in nearly every banking and general studies exam.
History and Setup
- The RBI was established on 1 April 1935 under the RBI Act, 1934.
- It was based on the recommendations of the Hilton Young Commission.
- It was nationalised on 1 January 1949.
- Its headquarters is in Mumbai; the first Governor was Sir Osborne Smith and the first Indian Governor was C. D. Deshmukh.
Main Functions
- Issue of currency - the RBI is the sole authority to issue currency notes except the one-rupee note and coins (issued by the Finance Ministry).
- Banker to the government - manages accounts and debt of the central and state governments.
- Banker's bank - holds reserves of commercial banks and acts as lender of last resort.
- Controller of credit - manages money supply through monetary policy.
Advertisement
Monetary Tools
- Quantitative tools: Repo rate, Reverse repo rate, CRR, SLR and Open Market Operations.
- Qualitative tools: margin requirements, moral suasion and credit rationing.
- Currency is issued under the Minimum Reserve System, keeping a minimum reserve of 200 crore in gold and foreign securities.
Other Roles
- Manages the country's foreign exchange reserves.
- Maintains price stability and supports economic growth.
- The Monetary Policy Committee (MPC) sets the policy interest rate.
Quick Revision Points
- RBI established 1 April 1935; nationalised 1949.
- Based on the Hilton Young Commission.
- Headquarters: Mumbai.
- First Indian Governor: C. D. Deshmukh.
- Sole issuer of currency (except 1-rupee note and coins).
- Acts as banker to government and lender of last resort.
- Policy rate decided by the MPC.