RESERVE BANK OF INDIA (PART - 1)

RESERVE BANK OF INDIA

Origin

1926: The Royal Commission on Indian Currency and Finance (Hilton-Young Commission) recommended creation of a central bank for India.

1927: A bill to give effect to the above recommendation was introduced in the Legislative Assembly, but was later withdrawn due to lack of agreement among various sections of people.

1933: The White Paper on Indian Constitutional Reforms recommended the creation of a Reserve Bank. A fresh bill was introduced in the Legislative Assembly.

1934: The Bill was passed and received the Governor General’s assent

1935: The Reserve Bank commenced operations as India’s central bank on April 1 as a private shareholders’ bank with a paid up capital of rupees five crore (rupees fifty million).

1942: The Reserve Bank ceased to be the currency issuing authority of Burma (now Myanmar).

1947: The Reserve Bank stopped acting as banker to the Government of Burma.

1948: The Reserve Bank stopped rendering central banking services to Pakistan.

1949: The Government of India nationalised the Reserve Bank under the Reserve Bank (Transfer of Public Ownership) Act, 1948

Preamble

The Preamble to the Reserve Bank of India Act, 1934 (the Act), under which it was constituted, specifies its objective as “to regulate the issue of Bank notes 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”.

Structure, Organisation and Governance

The Reserve Bank is wholly owned by the Government of India. The Central Board of Directors oversees the Reserve Bank’s business.

The Central Board has primary authority for the oversight of the Reserve Bank. It delegates specific functions through its committees and sub-committees.

Central Board: Includes the Governor, Deputy Governors and a few Directors (of relevant local boards).

The Central Board of Directors is at the top of the Reserve Bank’s organisational structure. Appointed by the Government under the provisions of the Reserve Bank of India Act, 1934. It delegates specific functions to the Local Boards and various committees. The Governor is the Reserve Bank’s chief executive. The Governor supervises and directs the affairs and business of the RBI. The management team also includes Deputy Governors and Executive Directors. The Central Government nominates fourteen Directors on the Central Board, including one Director each from the four Local Boards. The other ten Directors represent different sectors of the economy, such as, agriculture, industry, trade, and professions. All these appointments are made for a period of four years. The Government also nominates one Government official as a Director representing the Government, who is usually the Finance Secretary to the Government of India and remains on the Board ‘during the pleasure of the Central Government’. The Reserve Bank Governor and a maximum of four Deputy Governors are also ex officio Directors on the Central Board.

Committee of Central Board: Oversees the current business of the central bank and typically meets every 

week, on Wednesdays. The agenda focuses on current operations, including approval of the weekly statement of accounts related to the Issue and Banking Departments.

Board for Financial Supervision: Regulates and supervises commercial banks, Non-Banking Finance Companies (NBFCs), development finance institutions, urban co-operative banks and primary dealers.

In terms of the regulations formulated by the Central Board under Section 58 of the RBI Act, the Board for Financial Supervision (BFS) was constituted in November 1994, as a committee of the Central Board, to undertake integrated supervision of different sectors of the financial system. Entities in this sector include banks, financial institutions and non-banking financial companies (including Primary Dealers). The Reserve Bank Governor is the Chairman of the BFS and the Deputy Governors are the ex officio members. One Deputy Governor, usually the Deputy Governor in-charge of banking regulation and supervision, is nominated as the Vice-Chairperson and four directors from the Reserve Bank’s Central Board are nominated as members of the Board by the Governor. The Board is required to meet normally once a month. It deliberates on various regulatory and supervisory policy issues, including the findings of on-site supervision and off-site surveillance carried out by the supervisory departments of the Reserve Bank and gives directions for policy formulation. The Board thus plays a critical role in the effective discharge of the Reserve Bank’s regulatory and supervisory responsibilities.

Audit Sub-Committee

The BFS has constituted an Audit Sub-Committee under the BFS Regulations to assist the Board in improving the quality of the statutory audit and internal audit in banks and financial institutions. The Deputy Governor in charge of regulation and supervision heads the sub-committee and two Directors of the Central Board are its members.

Board for Payment and Settlement Systems: Regulates and supervises the payment and settlement  systems.

The Board for Regulation and Supervision of Payment and Settlement Systems provides an oversight and direction for policy initiatives on payment and settlement systems within the country. The Reserve Bank Governor is the Chairman of the BPSS, while two Deputy Governors, three Directors of the Central Board and some permanent invitees with domain expertise are its members. The BPSS lays down policies for regulation and supervision of payment and settlement systems, sets standards for existing and future systems, authorises such systems, and lays down criteria for their membership

Sub-committees of the Central Board: Includes those on Inspection and Audit; Staff; and Building. Focus of each subcommittee is on specific areas of operations.

Local Boards: In Chennai, Kolkata, Mumbai and New Delhi, representing the country’s four regions. Local board members, appointed by the Central Government for four-year terms, represent regional and economic interests and the interests of co-operative and indigenous banks.

TO BE CONTINUE...............