Reserve Bank of India (RBI)

The Reserve Bank of India was nationalised on 1 January 1949, making it a fully government-owned institution. This was done under the Reserve Bank of India (Transfer to Public Ownership) Act, 1948.

The headquarters of the RBI is located in Mumbai (previously Bombay). Initially established in Calcutta (Kolkata), the headquarters was permanently moved to Bombay in 1937. The RBI has regional offices in major cities.

RBI is called the 'Banker's Bank' because it acts as a banker to all commercial banks — accepting deposits, providing loans, and acting as the lender of last resort when banks face a liquidity crisis.

The Monetary Policy Committee (MPC) decides the key policy repo rate in India. The MPC has 6 members — 3 from RBI (including the Governor as Chairman) and 3 external members appointed by the Government.

When RBI increases the repo rate, commercial banks have to pay more to borrow from RBI. They pass this on by raising lending rates, making loans more expensive. This reduces borrowing, spending, and helps control inflation.

The Reverse Repo Rate is always lower than the Repo Rate. It is the rate at which RBI borrows money from commercial banks by accepting their surplus funds. The corridor between repo rate and reverse repo rate is maintained by RBI.

Collecting direct taxes is NOT a function of RBI. It is done by the Income Tax Department under the Ministry of Finance. RBI's functions include currency issuance, monetary policy, banking regulation, foreign exchange management, and government banker.

The Cash Reserve Ratio (CRR) is the percentage of a bank's total deposits that must be kept as reserves with the RBI. By increasing CRR, RBI reduces money available for lending; decreasing CRR injects liquidity into the system.

Sir Osborne Smith, a British banker, was the first Governor of the RBI from April 1935 to June 1937. C.D. Deshmukh was the first Indian Governor of RBI (1943-1949) and later became India's Finance Minister.

SLR requires banks to maintain a specified percentage of their Net Demand and Time Liabilities (NDTL) in approved liquid assets — cash, gold, or approved government securities. This ensures banks have sufficient liquid assets to meet sudden demands.

Open Market Operations (OMO) involve RBI buying or selling government securities in the open market to control liquidity. When RBI buys securities, it injects money into the economy; when it sells, it absorbs liquidity.

RBI manages India's foreign exchange reserves under FEMA (Foreign Exchange Management Act), 1999, which replaced the earlier FERA. FEMA's objective is to facilitate external trade and payments and maintain the orderly development of the foreign exchange market.

Sanjay Malhotra became the 26th Governor of RBI on 11 December 2024, succeeding Shaktikanta Das who served from 2018 to 2024. Raghuram Rajan served as Governor from 2013-2016.

RBI mandates that all domestic commercial banks lend at least 40% of their Adjusted Net Bank Credit (ANBC) or Credit Equivalent of Off-Balance Sheet Exposure to priority sectors — agriculture, MSMEs, education, housing, and weaker sections.

Non-Banking Financial Companies (NBFCs) are registered with and regulated by the RBI under the RBI Act, 1934. They provide banking services but cannot accept demand deposits and do not form part of the payment and settlement system.

The PCA framework is a supervisory tool of RBI for banks that show signs of financial stress — poor capital ratios, high Net Non-Performing Assets (NNPAs), or negative Return on Assets. PCA restrictions include limits on branch expansion and dividend distribution.

UPI is developed and managed by NPCI (National Payments Corporation of India), which was set up by RBI and Indian Banks' Association. However, RBI regulates the overall payments system ecosystem in India.

The Bank Rate is the rate at which RBI lends money to commercial banks for long-term purposes without any collateral (security). The Repo Rate is for short-term (usually overnight) lending with government securities as collateral.

India's foreign exchange reserves include Foreign Currency Assets (FCA, the largest component), Gold, Special Drawing Rights (SDRs) from the IMF, and the Reserve Tranche Position in the IMF. RBI reports these reserves weekly.