An Overview RBI The origins of the Reserve Bank of India can be traced to 1926, when the Royal Commission

on Indian Currency and Finance also known as the Hilton-Young Commission recommended the creation of a central bank for India to separate the control of currency and credit from the Government and to augment banking facilities throughout the country. The Reserve Bank of India Act of 1934 established the Reserve Bank and set in motion a series of actions culminating in the start of operations in 1935. Since then, the Reserve Banks role and functions have undergone numerous changes, as the nature of the Indian economy and financial sector changed. Starting as a private shareholders bank, the Reserve Bank was nationalised in 1949. It then assumed the responsibility to meet the aspirations of a newly independent country and its people. The Reserve Banks nationalisation aimed at achieving coordination between the policies of the government and those of the central bank.

Functions of RBI The Preamble to the Reserve Bank of India Act, 1934 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. The objectives outlined in the Preamble hold good even after 77 years. As evident from the multifaceted functions that the Reserve Bank performs today, its role and priorities have, in the span of 77 years, changed in tandem with changing national priorities and global developments. Essentially, the Reserve Bank has demonstrated dynamism and flexibility to meet the requirements of an evolving economy.
Monetary policy
Regulation and supervision of the banking and nonbankingfinancial institutions, including credit information companies Regulation of money, forex and government securities markets as also certain financial derivatives

Debt and cash management for Central and State Governments Management of foreign exchange reserves Foreign exchange managementcurrent and capital account management Banker to banks Banker to the Central and State Governments Oversight of the payment and settlement systems Currency management Developmental role Research and statistics

Organization Structure of RBI

Central Board of Directors

Governer

Deputy Governer

Executive Governer Principal Chief General Manager Chief General Managers

General Managers

Deputy General Managers Assistant General Managers

Managers

Assistant Managers

Support Staff

Central Board of Directors The Central Board of Directors is the main committee of the central bank. The Government of India appoints the directors for a four-year term. The Board consists of a governor, four deputy governors, fifteen directors to represent the regional boards, one from the Ministry of Finance and ten other directors from various fields. Governors The current Governor of RBI is Duvvuri Subbarao. The RBI extended the period of the present governor up to 2013. There are four deputy governors, currently K. C. Chakrabarty, Subir Gokarn, Anand Sinha and Harun Rashid Khan Supportive bodies The Reserve Bank of India has four regional representations: North in New Delhi, South in Chennai, East in Kolkata and West in Mumbai. The representations are formed by five members, appointed for four years by the central government and servebeside the advice of the Central Board of Directors as a forum for regional banks and to deal with delegated tasks from the central board. The institution has 22 regional offices. The Board of Financial Supervision (BFS), formed in November 1994, serves as a CCBD committee to control the financial institutions. It has four members, appointed for two years, and takes measures to strength the role of statutory auditors in the financial sector, external monitoring and internal controlling systems. The Tarapore committee was set up by the Reserve Bank of India under the chairmanship of former RBI deputy governor S. S. Tarapore to "lay the road map" to capital account convertibility. The five-member committee recommended a threeyear time frame for complete convertibility by 19992000. On 1 July 2007, in an attempt to enhance the quality of customer service and strengthen the grievance redressal mechanism, the Reserve Bank of India created a new customer service department. Offices and branches The Reserve Bank of India has 4 zonal offices. It has 19 regional offices at most state capitals and at a few major cities in India. Few of them are located in Ahmedabad, Bangalore, Bhopal, Bhubaneswar, Chandigarh, Chennai, Delhi, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, Patna, and Thiruvananthapuram. Besides it has 09 sub-offices at Agartala, Dehradun, Gangtok, Kochi, Panaji, Raipur, Ranchi, Shimla and Srinagar

RBI function as Banker to Banks

Banks are required to maintain a portion of their demand and time liabilities as cash reserves with the Reserve Bank, thus necessitating a need for maintaining accounts with the Bank. Further, banks are in the business of accepting deposits and giving loans. Since different persons deal with different banks, in order to settle transactions between various customers maintaining accounts with different banks, these banks have to settle transactions among each other. Settlement of inter-bank obligations thus assumes importance. To facilitate smooth operation of this function of banks, an arrangement has to be made to transfer money from one bank to another. This is usually done through the mechanism of a clearing house where banks present cheques and other such instruments for clearing. Many banks also engage in other financial activities, such as, buying and selling securities and foreign currencies. Here too, they need to exchange funds between themselves. In order to facilitate a smooth inter-bank transfer of funds, or to make payments and to receive funds on their behalf, banks need a common banker. In order to meet the above objectives, in India, the Reserve Bank provides banks with the facility of opening accounts with itself. This is the Banker to Banks function of the Reserve Bank, which is delivered through the Deposit Accounts Department (DAD) at the Regional offices. The Department of Government and Bank Accounts oversees this function and formulates policy and issues operational instructions to DAD. Reserve Bank as Banker to Banks, to fulfill this function, the Reserve Bank opens current accounts of banks with itself, enabling these banks to maintain cash reserves as well as to carry out inter-bank transactions through these accounts. Inter-bank accounts can also be settled by transfer of money through electronic fund transfer system, such as, the Real Time Gross Settlement System (RTGS). The Reserve Bank continuously monitors operations of these accounts to ensure that defaults do not take place. Among other provisions, the Reserve Bank stipulates minimum balances to be maintained by banks in these accounts. Since banks need to settle funds with each other at various places in India, they are allowed to open accounts with different regional offices of the Reserve Bank. The Reserve Bank also facilitates remittance of funds from a banks surplus account at one location to its deficit account at another. Such transfers are electronically routed through a computerised system. The computerisation of accounts at the Reserve Bank has greatly facilitated banks monitoring of their funds position in various accounts across different Locations on a real-time basis.

As Banker to Banks, the Reserve Bank focuses on Enabling smooth, swift and seamless clearing and settlement of inter-bank Obligations. Providing an efficient means of funds transfer for banks. Enabling banks to maintain their accounts with the Reserve Bank for Statutory reserve requirements and maintenance of transaction balances. Acting as a lender of last resort. In addition, the Reserve Bank has also introduced the Centralised Funds Management System (CFMS) to facilitate centralised funds enquiry and transfer of funds across DADs. This helps banks in their fund management as they can access information on their balances maintained across different DADs from a single location. Currently, 75 banks are using the system and all DADs are connected to the system. As Banker to Banks, the Reserve Bank provides short-term loans and advances to select banks, when necessary, to facilitate lending to specific sectors and for specific purposes. These loans are provided against promissory notes and other collateral given by the banks. Lender of Last Resort As a Banker to Banks, the Reserve Bank also acts as the lender of last resort. It can come to the rescue of a bank that is solvent but faces temporary liquidity problems by supplying it with much needed liquidity when no one else is willing to extend credit to that bank. The Reserve Bank extends this facility to protect the interest of the depositors of the bank and to prevent possible failure of a bank, which in turn may also affect other banks and institutions and can have an adverse impact on financial stability and thus on the economy.

RBI role as Monetary Authority Monetary policy refers to the use of instruments under the control of the central bank to regulate the availability, cost and use of money and credit. The main objectives of monetary policy in India are: Maintaining price stability Ensuring adequate flow of credit to the productive sectors of the economy to support economic growth Financial stability The Reserve Banks Monetary Policy Department (MPD) formulates monetary policy. The Financial Markets Department (FMD) handles day-to-day liquidity management

operations. There are several direct and indirect instruments that are used in the formulation and implementation of monetary policy. Direct Instruments Cash Reserve Ratio (CRR) Statutory Liquidity Ratio (SLR) Refinance facilities Indirect Instruments Liquidity Adjustment Facility (LAF) Open Market Operations (OMO) Market Stabilisation Scheme (MSS) Repo/reverse repo rate Bank rate RBI role as Issuer of Currency The Reserve Bank is the nations sole note issuing authority. Along with the Government of India, RBI & GOI are responsible for the design and production and overall management of the nations currency, with the goal of ensuring an adequate supply of clean and genuine notes. The Reserve Bank also makes sure there is an adequate supply of coins, produced by the government. In consultation with the government, RBI routinely addresses security issues and target ways to enhance security features to reduce the risk of counterfeiting or forgery. RBI role as Banker and Debt Manager to Government Managing the governments banking transactions is a key RBI role. Like individuals, businesses and banks, governments need a banker to carry out their financial transactions in an efficient and effective manner, including the raising of resources from the public. As a banker to the central government, the Reserve Bank maintains its accounts, receives money into and makes payments out of these accounts and facilitates the transfer of government funds. RBI also act as the banker to those state governments that have entered into an agreement with RBI The role as banker and debt manager to government includes several distinct functions Undertaking banking transactions for the central and state governments to facilitate receipts and payments and maintaining their accounts. Managing the governments domestic debt with the objective of raising the required amount of public debt in a cost-effective and timely manner.

 Developing the market for government securities to enable the government to raise debt at a reasonable cost, provide benchmarks for raising resources by other entities and facilitate transmission of monetary policy actions.

RBI role as Banker Central Government As banker to the Government, the Reserve Bank works out the overall funds position and sends daily advice showing the balances in its books, Ways and Means Advances granted to the government and investments made from the surplus fund. The daily advices are followed up with monthly statements. Banker to the State Governments All the State Governments are required to maintain a minimum balance with the Reserve Bank, which varies from state to state depending on the relative size of the state budget and economic activity. To tide over temporary mismatches in the cash flow of receipts and payments, the Reserve Bank provides Ways and Means Advances to the State Governments. The WMA scheme for the State Governments has provision for Special and Normal WMA. The Special WMA is extended against the collateral of the government securities held by the State Government. After the exhaustion of the special WMA limit, the State Government is provided a normal WMA. The normal WMA limits are based on three-year average of actual revenue and capital expenditure of the state. The withdrawal above the WMA limit is considered an overdraft. A State Government account can be in overdraft for a maximum 14 consecutive working days with a limit of 36 days in a quarter. The rate of interest on WMA is linked to the Repo Rate. Surplus balances of State Governments are invested in Government of India 14-day Intermediate Treasury bills in accordance with the instructions of the State Governments. Regulator of Banking System Banks are fundamental to the nations financial system. The central bank has a critical role to play in ensuring the safety and soundness of the banking system and in maintaining financial stability and public confidence in this system. As the regulator and supervisor of the banking system, the Reserve Bank protects the interests of depositors, ensures a framework for orderly development and conduct of banking operations conducive to customer interests and maintains overall financial stability through preventive and corrective measures.

RBI Approach for Regulating Banking System The Reserve Bank regulates and supervises the nations financial system. Different departments of the Reserve Bank oversee the various entities that comprise Indias financial infrastructure. Commercial banks and all-India development financial institutions: Regulated by the Department of Banking Operations and Development, supervised by the Department of Banking Supervision Urban co-operative banks: Regulated and supervised by the Urban Banks Department Regional Rural Banks (RRB), District Central Cooperative Banks and State Co-operative Bank: Regulated by the Rural Planning and Credit Department and supervised by NABARD Non-Banking Financial Companies (NBFC): Regulated and supervised by the Department of Non-Banking Supervision Manager of Foreign Exchange With the transition to a market-based system for determining the external value of the Indian rupee, the foreign exchange market in India gained importance in the early reform period. In recent years, with increasing integration of the Indian economy with the global economy arising from greater trade and capital flows, the foreign exchange market has evolved as a key segment of the Indian financial market. The Reserve Bank plays a key role in the regulation and development of the foreign exchange market and assumes three broad roles relating to foreign exchange Regulating transactions related to the external sector and facilitating the development of the foreign exchange market Ensuring smooth conduct and orderly conditions in the domestic foreign exchange market Managing the foreign currency assets and gold reserves of the country

Foreign Exchange Management Act,1999 and regulates the market by issuing licenses to banks and other select institutions to act as Authorised Dealers in foreign

exchange. The Foreign Exchange Department (FED) is responsible for the regulation and development of the market. On a given day, the foreign exchange rate reflects the demand for and supply of foreign exchange arising from trade and capital transactions. The RBIs Financial Markets Department (FMD) participates in the foreign exchange market by undertaking sales / purchases of foreign currency to ease volatility in periods of excess demand for/supply of foreign currency. The Department of External Investments and Operations (DEIO) invests the countrys foreign exchange reserves built up by purchase of foreign currency from the market. In investing its foreign assets, the Reserve Bank is guided by three principles: safety, liquidity and return. Foreign Exchange Reserve Management The Reserve Banks reserves management function has in recent years grown both in terms of importance and sophistication for two main reasons. First, the share of foreign currency assets in the balance sheet of the Reserve Bank has substantially increased. Second, with the increased volatility in exchange and interest rates in the global market, the task of preserving the value of reserves and obtaining a reasonable return on them has become challenging. The basic parameters of the Reserve Banks policies for foreign exchange reserves management are safety, liquidity and returns. Within this framework, the Reserve Bank focuses on: Maintaining markets confidence in monetary and exchange rate policies. Enhancing the Reserve Banks intervention capacity to stabilise foreign exchange markets. Limiting external vulnerability by maintaining foreign currency liquidity to absorb shocks during times of crisis, including national disasters or emergencies. Providing confidence to the markets that external obligations can always be met, thus reducing the costs at which foreign exchange resources are available to market participants. Adding to the comfort of market participants by demonstrating the backing of domestic currency by external assets. RBI role as Developer This role is, perhaps, the most unheralded aspect of our activities, yet it remains among the most critical. This includes ensuring that credit is available to the productive sectors of the economy, establishing institutions designed to build the countrys financial infrastructure, expanding access to affordable financial services and promoting financial education and literacy.

The Reserve Bank continues its developmental role, while specifically focusing on financial inclusion. Key tools in this on-going effort include Directed credit for lending to priority sector and weaker sections: The goal here is to facilitate/ enhance credit flow to employment intensive sectors such as agriculture, micro and small enterprises (MSE), as well as for affordable housing and education loans. Lead Bank Scheme: A commercial bank is designated as a lead bank in each district in the Country and this bank is responsible for ensuring banking development in the district through coordinated efforts between banks and government officials. The Reserve Bank has assigned a Lead District Manager for each district who acts as a catalytic force for promoting financial inclusion and smooth working between government and banks. Sector specific refinance: The Reserve Bank makes available refinance to banks against their credit to the export sector. In exceptional circumstances, it can provide refinance against lending to other sectors.. Strengthening and supporting small local banks: This includes regional rural banks and cooperative banks Financial inclusion: Expanding access to finance and promoting financial literacy are a part of our outreach efforts. RBIs role in Research RBI economic research focuses on study and analysis of domestic and international issues affecting the Indian economy. This is mainly done by the Department of Economic Analysis and Policy and the Department of Statistics and Information Management. This important work is designed to: Educate the public Provide reliable, data-driven information for policy and decision-making Supply accurate and timely data for academic research as well as the general public