Structure of Organized Indian Banking System – Part 1


Reserve Bank of India

Reserve Bank of India is the Central Bank of Indian Banking system. It is the supreme monetary and banking authority of India. It has established on 1st April 1935 as a private share holder.

Important key points about RBI

  • The Reserve Bank of India was established under RBI Act of 1934 as the banker to the central government.
  • It came into existence on April 1, 1935.
  • Initially headquarters of RBI were in Kolkata.
  • In 1937, headquarter was shifted to Shahid Bhagat Singh Marg, Mumbai in 1937.
  • Naionalisation of RBI was done in 949, under the Reserve Bank Act, 1948. Since then RBI started working as a Government.
  • In 1949, Banking Regulation Act was enacted.
  • In 1969, Nationalization of 14 banks was done. It was a turning point in the history of Indian Banking Industry.
  • In 1975 Regional Rural Banks was started.
  • Non Banking Financial Companies (NBFC) got strengthened in 1997.

RBI as a Monetary Authority of India  

RBI works as a monetary Authority of India. Monetary policy used to control the money supply in the economy. Policy review is being done quarterly, started from April and followed by July, October and January.

RBI – Issuer of Currency

Under Section 22 of RBI Act, 1934, Reserve Bank of India has the sole right to issue bank notes of all denominations. The first paper notes were issued by the private banks such as Bank of Hindustan and the Presidency Banks during late 18the century.

RBI-Banker to the Government

RBI operates as a Banker and Debt Manager to the Government, this is a very important function. RBI manages Money, remittance, exchange and all banking transactions of Indian Government. It also manages the public debt of central government. Government deposits all its cash balance with RBI.

RBI helps both State Government and Central Government in managing their public debt.

RBI – Banker of Banks

RBI operates as a Banker of all banks in India.

  • Banks maintain their current accounts with RBI and RBI helps them in maintaining statutory reserve with itself.
  • RBI holds the part of cash reserves of banks.
  • It also lends funds for short-term.
  • RBI provides the facility of inter-bank transfer of funds. For this banks open accounts with RBI, in this way it works as a common banker for all banks.

RBI – Custodian of Foreign Exchange Reserves

RBI acts as a custodian of the country’s foreign exchange reserves. It acts as the agent of the government in respect of India’s membership of the IME.

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