RBI was established on 1st of April 1935.

Initially it was located in Kolkata but later on it moved to Mumbai in the year 1937. It was set up on the recommendations of the HILTON YOUNG COMMISSION. It was started as ShareHolders Bank with a paid up capital of 5 crores. Initially it was privately owned and it was the 1st bank to be Nationalized in 1949.It has 22 regional offices, most of them in state capitals.

The Reserve Bank's affairs are governed by a central board of directors and four local board of directors. The central board performs the function of general superintendence and direction of the banks affairs. Central board: Appointed/nominated by the GOI for a time period of four years. It includes the followingOfficial directors Non-official directors Committee of Central board Board for Financial Supervision(BFS)

Scheduled Banks

Scheduled Commercial Banks

Scheduled Co-operative Banks(53)

Private Sector Bank 22(16+8)

Public Sector Bank 27(20+7)

Foreign Bank 30

Regional Rural Bank 86

Urban Co-operative Bank

State Co-operative Bank

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 costeffective 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. 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.

Issuer of currency

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.

The functions of the Reserve Bank today can be categorized as follows: Monetary policy Regulation and supervision of the banking and nonbanking financial 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

Macroeconomic Policies

Fiscal Policy
Related to budget, government expenditure, taxation

Physical Policy
Related to overcoming specific problems of the economy

Monetary Policy Related to money supply, exchange rate control and bank rate control

Fiscal Policy
Use of Government Expenditure, and taxation to manage the economy.

Purpose of Fiscal Policy Stabilise economic growth, avoiding the boom and bust economic cycle

Variables affected by Fiscal Policy in the economy Aggregate demand and the level of economic activity The pattern of resource allocation The distribution of income.

Physical Policy
Meant to affect only strategic points of the economy

Purpose of Physical Policy Overcome specific problems such as pricing of particular commodity, shortages or surpluses developing in the economy etc.

Variables affected by Physical Policy in the economy Price and distribution of specific commodity Investment and production Foreign Trade

Monetary Policy
Regulation of supply of Money and Cost and Availability of Credit in the economy Purpose of Monetary Policy Maintain price stability, ensure adequate flow of credit to the productive sectors of the economy and overall economic growth Variables affected by Monetary Policy in the economy Interest Rates Liquidity Credit Availability Exchange Rates

Monetary Policy RBIs role

Demand for Money Demand for goods/services

Instruments such as CRR, OMO & Bank Rate

Ensuring price stability and savings

Control on money supply, velocity of circulation of money during inflation

Control on bank credit when prices rise/fall

Monetary Policy Terminology

Inflation Money Supply (M3) Bank Rate Cash Reserve Ratio (CRR) Statutory Liquidity Ratio (SLR) Repo Rate
Inflation refers to a persistent rise in prices Total volume of money circulating in the economy Minimum rate at which the central bank provides loans to commercial banks Amount of money that banks must set aside with RBI against their deposits Percentage of bank funds to be maintained in government and approved securities Rate at which RBI lends to other banks against government securities Rate at which RBI borrows from other banks

Reverse Repo Rate

Capital Adequacy Ratio (CAR)

Capacity of bank meeting the time liabilities and other risk

Purchase and sale of securities in the open market

Open Market Operations (OMO)

Current Rates
Inflation Bank Rate CRR SLR

9-10%

6.0%
6.0% 24.0% 8.50% 7.50%

Repo Rate
Reverse Repo Rate PLR Re/$

12.75% 13.25%
50.95

The RBI has 26 departments focusing on policy issues in RBIs functional areas.They are as follows-

1.Customer Service Department:

In order to enhance the quality of customer service and strengthen the grievance redressal mechanism, the RBI constituted a new department namely CSD. 2. Department of Currency Management: This department performs the core statutory function of note and coin issue and currency management. 3. Urban Banks Department: This department carries out the function of regulation and supervision of UCBs. 4. Rajbhasha Department: Translating annual reports, news letters, bulletins etc. Imparting training to officers/employees in Hindi language, Use of Hindi on computers, and English-Hindi translation.

5. Rural Planning and Credit Department:

RPCD is primarily concerned with formulating policies relating to rural credit and monitors timely and adequate flow of credit to the rural population for agricultural activities etc. 6. Foreign Exchange Department: It is concerned with facilitating external trade and developing foreign exchange markets of India. 7. Human Resources Development Department: Recruitment, Performance and Potential Appraisal, Placement etc. 8. Financial Markets Department: This department wad established with the objective of integrating the banking sector to the financial markets and help the bank to conduct monetary operations viz. OMOs,LAF etc.

9. Financial Stability Unit:

Development of a time series of a core set of financial indicators. Conduct of systemic stress tests to assess resilience. Preparation of financial stability reports. 10. Inspection Department (Internal): 11. Department of Banking Supervision: This department is entrusted with the authority of regulating and supervising the Indian Banking System including FIs. 12. Department of Non-Banking Supervision (DNBS): Mainly concerned with supervising the NBFCs.

13. Department of Banking Operations and Development: The Department is entrusted with the responsibility of regulation of commercial banks under the provisions contained in Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934 and other related statutes and development of banking policies. 14. Department of Information Technology: Computerizing the operation in RBI Monitoring the progress of IT in banks. 15. Legal Department: 16. Monetary Policy Department: 17. Internal Debt Management Department: Managing public debt of the GOI/state govts. Management of PDs system and development of govt. securities market.

18. Department of External Investments and Operations: Invest of foreign exchange reserves of the RBI. 19. Department of Economic & Policy Research: Concerned with studying the issues both domestic and international affecting the Indian economy. 20. Department of Statistics and Information Management: Collection, processing and dissemination of data on banking, corporate and external sectors. 21. Department of Payment and Settlement Systems: 22. Secretary's Department: Secretarial work involving meetings of central board and its committees etc. Secretarial work relating to deputy governors committee meetings. 23. External Relations and Customer Service. Annual, quarterly, monthly and weekly reports etc.

23. Department of Communication:

24. Department of Expenditure and Budgetary Control: 25. Department of Administration and Personnel Management: 26. Department of Banking Operation and Development: 27. Department of Govt and Bank accounts.