RBI was established on 1st of April 1935.Initially it was located in Kolkata but later on it moved to Mumbai

in the year 1937. It was set up on the recommendations of

the HILTON YOUNG COMMISSION. It was started as Share-Holders Bank with a paid up capital of 5 crores.

Initially it was privately owned and it was the 1st bank

to be Nationalized in 1949.It has 22 regional offices, most of them in state capitals.

The Reserve Bank's affairs are governed by a central board of directors and four local board of directors. The central board performs the function of general superintendence and direction of the bank’s affairs.

Central board: Appointed/nominated by the GOI for a time period of four years. It includes the following-

Official directors Non-official directors Committee of Central board Board for Financial Supervision(BFS)

Scheduled Banks

Scheduled CommercialBanks

Scheduled Co-operative Banks(53)

PrivateSector Bank

22(16+8)

PublicSector Bank

27(20+7)

Foreign Bank30

RegionalRural Bank86

Urban Co-operativeBank

State Co-operativeBank

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.

The functions of the Reserve Bank today can be categorized as follows:

Monetary policy Regulation and supervision of the banking and non-

banking financial institutions, including credit information companies.

Regulation of money, forex and government securities markets as also certain financial derivatives.

Debt and cash management for Central and State Governments

Management of foreign exchange reserves Foreign exchange management—current and capital

account management

Macroeconomic Policies

Fiscal PolicyUse of “Government Expenditure”, and “taxation” to manage

the economy.

Variables affected by Fiscal Policy in the economy

Aggregate demand and the level of economic activity The pattern of resource allocationThe distribution of income.

Purpose of Fiscal Policy

Stabilise economic growth, avoiding the boom and bust economic cycle

Physical Policy

Meant to affect only strategic points of the economy

Variables affected by Physical Policy in the economy

Price and distribution of specific commodityInvestment and productionForeign Trade

Purpose of Physical Policy

Overcome specific problems such as pricing of particular commodity, shortages or surpluses developing in the economy etc.

Monetary PolicyRegulation of supply of Money and Cost and Availability of

Credit in the economy

Variables affected by Monetary Policy in the economy

Interest RatesLiquidityCredit AvailabilityExchange Rates

Purpose of Monetary Policy

Maintain price stability, ensure adequate flow of credit to the productive sectors of the economy and overall economic growth

Monetary Policy – RBI’s role

Monetary Policy – Terminology

Current Rates

The RBI has 26 departments focusing on policy issues in RBI’s functional areas.They are as follows-

1.Customer Service Department: In order to enhance the quality of customer

service and strengthen the grievance redressal mechanism, the RBI constituted a new department namely CSD.

2. Department of Currency Management: This department performs the core statutory

function of note and coin issue and currency management.

3. Urban Banks Department: This department carries out the function of

regulation and supervision of UCBs.4. Rajbhasha Department: Translating annual reports, news letters, bulletins

etc. Imparting training to officers/employees in Hindi language, Use of Hindi on computers, and English-Hindi translation.

5. Rural Planning and Credit Department: RPCD is primarily concerned with formulating policies

relating to rural credit and monitors timely and adequate flow of credit to the rural population for agricultural activities etc.

6. Foreign Exchange Department: It is concerned with facilitating external trade and

developing foreign exchange markets of India.7. Human Resources Development Department: Recruitment, Performance and Potential Appraisal,

Placement etc.8. Financial Markets Department: This department wad established with the objective of

integrating the banking sector to the financial markets and help the bank to conduct monetary operations viz. OMOs,LAF etc.

9. Financial Stability Unit: Development of a time series of a core set  of

financial indicators. Conduct of systemic  stress tests to assess resilience. Preparation of financial stability reports.10. Inspection Department (Internal):11. Department of Banking Supervision: This department is entrusted with the authority of regulating and supervising the Indian Banking

System including FIs.12. Department of Non-Banking Supervision

(DNBS): Mainly concerned with supervising the NBFCs.

13. Department of Banking Operations and Development:

The Department is entrusted with the responsibility of regulation of commercial banks under the provisions contained in Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934 and other related statutes and development of banking policies.

14. Department of Information Technology: Computerizing the operation in RBI Monitoring the progress of IT in banks.15. Legal Department:16. Monetary Policy Department:17. Internal Debt Management Department: Managing public debt of the GOI/state govts. Management of PDs system and development of

govt. securities market.

18. Department of External Investments and Operations:

Invest of foreign exchange reserves of the RBI.19. Department of Economic & Policy Research: Concerned with studying the issues both domestic and

international affecting the Indian economy.20. Department of Statistics and Information

Management: Collection, processing and dissemination of data on

banking, corporate and external sectors. 21. Department of Payment and Settlement Systems:22. Secretary's Department: Secretarial work involving meetings of central board

and its committees etc. Secretarial work relating to deputy governors’

committee meetings.23. External Relations and Customer Service. Annual, quarterly, monthly and weekly reports etc.

23. Department of Communication:24. Department of Expenditure and

Budgetary Control:25. Department of Administration and

Personnel Management:26. Department of Banking Operation and Development:27. Department of Govt and Bank accounts.