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
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
22
regional offices, most of
them in state capitals.
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)
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. |