Prelimsverse: Learn all about RBI, its establishment, roles and functions.


1. The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.
2. The Central Office of the Reserve Bank was initially established in Kolkata but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. 
3. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

Main Functions of the RBI:

Monetary AuthorityFormulates, implements and monitors the monetary policy.Objective: maintaining price stability while keeping in mind the objective of growth
Regulator and supervisor of the financial systemPrescribes 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 ExchangeManages 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 currencyIssues, exchanges and destroys currency notes as well as puts into circulation coins minted by Government of India.Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.
Developmental rolePerforms a wide range of promotional functions to support national objectives.
Regulator and Supervisor of Payment and Settlement SystemsIntroduces and upgrades safe and efficient modes of payment systems in the country to meet the requirements of the public at large.Objective: maintain public confidence in payment and settlement system
Banker to the Governmentperforms merchant banking function for the central and the state governments; also acts as their banker.
Banker to banksmaintains banking accounts of all scheduled banks

Board for Financial Supervision (BFS)

  1. The Reserve Bank of India performs the supervisory function under the guidance of the Board for Financial Supervision (BFS). 
  2. The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India under the Reserve Bank of India (Board for Financial Supervision) Regulations, 1994.
  3. The primary objective of BFS is to undertake consolidated supervision of the financial sector comprising Scheduled Commercial and Co-operative Banks, All India Financial Institutions, Local Area Banks, Small Finance Banks, Payments Banks, Credit Information Companies, Non-Banking Finance Companies and Primary Dealers.
  4. The Board is constituted by co-opting four Directors from the Central Board as Members and is chaired by the Governor. The Deputy Governors of the Reserve Bank are ex-officio members. One Deputy Governor, traditionally, the Deputy Governor in charge of supervision, is nominated as the Vice-Chairman of the Board.

Functions of BFS

  1. Fine-tuning the supervisory processes adopted by the Bank for regulated entities;
  2. Introduction of off-site surveillance system to complement the on-site supervision of regulated entities;
  3. Strengthening the statutory audit processes of banks and enlarging the role of auditors in the supervisory process;
  4. Strengthening the internal defences within supervised institutions such as corporate governance, internal control and audit functions, management information and risk control systems, review of housekeeping in banks;
  5. Introduction of supervisory rating system for banks and financial institutions;
  6. Supervision of overseas operations of Indian banks, consolidated supervision of banks;
  7. Technical assistance programme for cooperative banks;
  8. Introduction of scheme of Prompt Corrective Action Framework for weak banks;
  9. Guidance regarding fraud risk management framework in banks;
  10. Introduction of risk based supervision of banks;
  11. Introduction of an enforcement framework in respect of banks;
  12. Establishment of a credit registry in respect of large borrowers of supervised institutions; 
  13. Setting up a subsidiary of RBI to take care of the IT requirements, including the cyber security needs of the Reserve Bank and its regulated entities, etc.

Leave a Comment

Your email address will not be published. Required fields are marked *