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RESERVE BANK OF INDIA HISTORY, ORIGIN AND FUNCTIONS BY: AWALE JAYASHREE LALASAHEB
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RESERVE BANK OF INDIA HISTORY, ORIGIN
AND FUNCTIONS
SUBMITTED BY: AWALE JAYASHREE
LALASAHEB
LLM II, Semester IV
(2022-2023)
Savitribal Phule Pune Univeristy.
Progressive Education Society's
Modern Law College, Pune.
1.
Introduction:
Reserve Bank of India or RBI is the central bank of
India. It is the one who is responsible for the issue and supply of the Indian
rupee. When we talk of economics and banking, RBI is the supreme body. It is
basically responsible for the circulation and legalization of any type of
currency in India. It began its operation on the 1st of April,1935. However,
after the independence of India in the year 1947, it was nationalized.
Besides being the national bank for currency
circulation, RBI has some other functions also. It makes rules and regulations
for all the banks working in India and also works for the economic development
of our country. So, after reading this you can realize that the Reserve Bank of
India plays a vital role in the financial market.
The Reserve Bank of India was a private share
holder’s company initially, which later was nationalized in 1949. Affairs of
RBI are governed by the Central Board of Directors which is appointed by the
Government of India. Since, after becoming the central bank of India, the
Reserve Bank of India had played an important role in the economic development
and monetary stability in the country.
2.
Establishment of Reserve Bank of India
Reserve Bank of India Act, 1934 is the legislative
act by which the Reserve Bank of India was formed. On April 1, 1935 the reserve
Bank of India was established. The central office of the reserve bank was
established in Calcutta but later it was permanently moved to Mumbai in year
1937.
The central office is where the governor of RBI sits
and where policies are formulated of the market. Through originally it was
privately owned, but since nationalization in 1949, the reserve Bank is fully
owned by the Government of India.
3.
History of Reserve Bank of India
Before Independence
The Royal Commission on Indian Currency and Finance
which was appointed on August 25, 1925 suggested the establishment of a Central
Bank in India, later the Indian Central Banking Enquiry Committee, 1931 also
stressed on the establishment of the Central Bank in India. The main object of
the Reserve Bank of India is, as preamble of RBI Act says,
* to regulate the issue of Bank notes
* keeping of reserves with a view to securing
monetary stability in India
* generally to operate the currency any credit
system of the country
The Reserve Bank of India issued its first currency
notes in January 1938 in denomination of Rs.5 and Rs.10 and later denomination
of Rs.100, Rs.1000 and Rs.10000 in the same year were issued.
After Independence
Through the Reserve Bank (Transfer of Public
Ownership) Act, 1948 the Reserve Bank of India was nationalized in the year
1949 after which all shares were transferred to Central Government. The Reserve
bank of India is constituted for the management of currency and for carrying
the business of banking in according to the provisions of the Act.
* It is a body corporate which has
perpetual succession,
* It has common seal and it can be
sued or sue in its name.
* Central Board of Directors is
entrusted with the general supervision and direction of the affairs of the
Reserve Bank.
4. Objectives of RBI
Before jumping towards the objectives of the Reserve
Bank of India, let's see what the preamble explains the objectives of RBI. The
Preamble to the Reserve Bank of India Act, 1934 tells about the objectives of
the Reserve Bank as “to regulate the issue of Banknotes and the keeping of
reserves to secure monetary stability in India and generally to operate the
currency and credit system of the country to its advantage.
* The Reserve Bank of India was set up with the
primary maxim of managing all the banks in India. The goal was to hold under
control the reserves as well as the issue of banknotes.
* Along these lines, it was done to
make sure about the financial stability and in this way to work the credit
system and currency of the nation for its potential benefit.
* The essential objective for the
Reserve Bank of India is to direct the different financial functions for India
in the money market. Therefore, they concentrate especially on issuing new
notes.
* Consequently, the RBI was set up
with the point of being a banker's bank and similarly the bank for the
government. It aimed to expand the economic progress of the nation through
different structures and economic policies of the government.
* In simple words, we can say that
it's fundamental motive is to encourage the planned system of growth of the
Indian economy.
5. Functions of Reserve Bank of India:
The fundamental functions of the RBI are to manage
the money supply in the nation. Similarly, it has been coordinated to deal with
agriculture, industry, and many more. The RBI is likewise answerable for the
support of the external value of the rupee.
According to the RBI Act 1934, it performs 3 kinds
of functions as that of some other central bank. So, here we will read in
detail about these three types of functions.
1. Banking Functions:
* Bank of Issue- The Reserve Bank has a
different Issue Department which is empowered with the issue of currency notes.
Under section 22 of the RBI Act, it has the exclusive right to issue currency
notes of numerous groups except one rupee note as it is issued by the Ministry
of Finance. The assets and liabilities of the Issue Department are kept
separate from those other Banking Department.
* Banker to Government-
Now, coming towards the second significant function
of the Reserve Bank of India which is to work as a Government banker, agent,
and adviser. It fulfils all the banking processes of the State and Central
Government. It also tenders valuable suggestions to the government on topics
related to economic and financial policy and even governs the public debt of
the government.
* Bankers’ Bank- The Reserve Bank of India
acts as the banker's bank and it lends money to all the commercial banks of the
country. As indicated by the outlay of the Banking Companies Act of 1949, each
scheduled bank was needed to keep up with the Reserve Bank a money balance
equal to 5 % of its demand liabilities and 2 % of its time liabilities in
India. In simple words, we can say that RBI fulfils the same functions for the
other commercial banks as the other banks fulfil their clients.
* Controller of Credit- We can
say that the RBI is the controller of credit as it can impact the volume of
credit made by banks in India. It can do as such by changing the Bank rate or
through open market tasks. RBI uses two techniques to prevent the extra flow of
wealth in the economy that is quantitative and qualitative techniques.
·
Custodian of Foreign Reserve- The Reserve bank must balance out the outer estimation of the public
cash. The Reserve Bank keeps gold and foreign currencies as reserves against
note issues and also meets the unfavourable offset of instalments with
different regions. Also, it oversees foreign currencies by the controls forced
by the administration.
2. Supervisory Functions:
The Reserve Bank Act, 1934, and the Banking
Regulation Act, 1949 have given the RBI vast powers of supervision and command
over the business and co-operative banks, connecting to licensing and foundations,
liquidity of their assets, recreation, and liquidation. The supervisory
functions of the RBI have assisted a lot in expanding the standard of banking
in India.
3. Promotional Functions:
With monetary development accepting a new urgency
since freedom, the scope of the Reserve Bank's functions has consistently
broadened. The Bank now plays out an assortment of improvement and promotional
functions, which, at once, were regarded as out of the typical scope of central
banking.
6. Initiatives taken
by Reserve Bank of India:
·
Computerization
·
Pre-paid payment instruments
·
Cheque Truncation System
(CTS)
·
Electronic Clearing Service
(ECS)
·
National Electronic Clearing
Service (NECS)
·
Electronic Funds Transfer
(EFT)
·
The Real Time Gross
Settlement (RTGS) system
7. Powers under Reserve Bank of India Act, 1934
RBI Act 1934 is the Act by which RBI was formed,
through this act only numerous powers are given to it just to perform its
duties and functions such are-
·
Section 18 talks about power
of RBI of direct discount.
·
Section 45B talks about
power of bank to collect credit information.
·
Section 45C talks about
power to call for returns containing credit information.
·
Section 45JA talks about
power of bank to determine policy and issue directions.
·
Section 45k talks about
power of bank to collect information from non-banking institutions as to
deposits and to give directions
·
Section 45L talks about
power of bank to call for information from financial institutions and to give
directions.
·
Section 45MB talks about
power of bank to prohibit acceptance of deposit and alienation of assets.
·
Section 45MC talks about
power of bank to file winding up petition.
·
Section 45NC talks about
power of bank to exempt.
·
Section 45T talks about
power to issue warrants.
·
Section 54AA talks about
power of bank to depute its employees to other institutions.
·
Section 58G talks about
power of bank to impose fine.
8. Powers of RBI under Banking Regulation Act, 1949
Banking Regulation Act, 1949 also provide powers of Reserve Bank of India
such as:
·
Section 10bb provides power
to reserve bank to appoint chairman of the board of directors appointed on a
whole time basis or managing director of any banking company.
·
Section 21 gives power to
reserve bank to control advances by banking companies.
·
Section 28 gives power to
reserve bank to publish any information obtained.
·
Section 36 gives numerous
powers to RBI-
It may caution or prohibit any banking company
regarding any transaction or class of transaction.On a request, in case of amalgamation
of banking companies it may assist as intermediary or otherwise.Give assistance
by way of advancement of loans.In the interest of a public policy or banking
company, may call meeting of its directors.May depute its one or more officer
to be heard the meeting of directors of banking company.May require the board
of directors of the banking company or so to give in writing to officer
specified, communication related to meeting.Appoint officer to observe the
manner in which the affairs are being conducted of banking company.May require
by order to make changes in management within specified time.RBI shall make a
annual report to central government regarding progress of banking and
suggestions, if any.May appoint staff to ensure its efficient performance
·
Section 36 aa gives power to
RBI for removal of managerial and other persons from office.
·
Section 36 ab gives power to
RBI to appoint additional directors a banking company.
·
Section 45 gives power to
RBI to apply to central government for suspension of business by a company and
for preparing scheme of reconstitution of amalgamation.
·
Section 45q talks about the
power of RBI on direction of High Court or central government to inspect books
of account of a company being wound up.
·
Section 45r gives power to
high court to call for returns and other information.
·
Section 47 a gives power to
RBI to impose penalty in case of default by any banking company.
9. Conclusion:
Reserve Bank of India is the central bank of India
which plays important role for the banking industry, development and growth of
economy. From formulating policies, issuing currency to monetary stability in
and maintenance of such monetary stability is the duty of RBI. It plays the
parent role to the commercial banks and other banking institutions.
Article Information
RESERVE BANK OF INDIA HISTORY, ORIGIN AND FUNCTIONS BY: AWALE JAYASHREE LALASAHEB
Authors: AWALE JAYASHREE LALASAHEB
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/05/30
- Volume 2
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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