Reserve Bank of India Act, 1934

 Reserve Bank of India

• Established RBI on 01.04.1935
• Nationalized on 01.01.1949
• Paid up capital – Rs. 5 crore
• Managed by a Central Board of Directors – (One Governor, 4 Dy. Governors & 15 other Directors) and 4 Local Boards (at 4 metros)
• 1st Governor – Mr. O Smith,
• 1st Indian Governor – Dr. C Desmukh
• Present Governor – Dr.Urjit R Patel

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• Negotiable Instrument Act
• Banking Regulation Act
• KYC and AML
• Statutory Ratios and Rates- CRR, SLR, Bank Rate, Repo Rate etc.
• Difference between Promissory Note and Bill of Exchange
• Dishonor of cheque for insufficiency of funds (Section 138 of NI Act)
• Endorsement under negotiable Instrument Act, 1881

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Functions of RBI:

Issuance of Currency (Section 22 of RBI Act)

Authority to issue currency notes under signatures of Governor (except One rupee note, which is issued by Central Govt. under Signature of Finance Secretary).

RBI can issue notes of any denomination but Maximum denomination a note can be Rs.10,000 (Section 24 of RBI Act).

 

Cessation of legal tender of currency notes

On recommendation of the Central Board the Central Government may, by notification in the Gazette of India, declare that any series of bank notes of any denomination shall cease to be legal tender.

 

Banker and Debt Manager to the Government

RBI transacts Govt. business & manages debts of Central Govt. Advises to Government on monetary policy matters means to raise funds for meeting temporary mismatch in revenue. (under Section 20 for Central Govt. and Section 21A for State Govt.)

 

Banker to Banks

Acts as a banker to the Scheduled banks and the lender of the last resort by providing financial assistance by way of refinance / rediscounting (Sec 17 (2) & (3) and Liquidity Adjustment Facility (controlling liquidity through repo and reverse repo auctions) Liquidity increase by repo and decrease by Reverse Repo.

 

Regulator for Banks/ NBFCs:

 RBI is empowered to Grants license to carry out Banking business, issue directions & carries out inspection.

 

Controller of Credit

Under Section 21 and 35A of Banking Regulations Act, RBI can fix interest rates (including Bank rate) and exercise selective credit controls to control inflation and money supply for ensuring growth of economy and price stability.

 

Collection and Furnishing of Credit Information

Section 45B – Power to collect credit information from banks

Section 45C- Power to call for returns containing credit information.

 

Regulation of Transactions in Derivatives, Money Market Instruments, Securities, etc

 

Managing Payment Systems, MICR, ECS, RTGS,NEFT etc.

 

Maintenance of value of Indian currency

RBI maintains and regulates foreign exchange transactions under the Foreign Exchange Management Act (FEMA).

 

Supervision of Financial System

Board for Financial Supervision (BFS) has been set up u/s 58 of RBI Act on 16.11.1994, which inter-alia performs the functions of empanelment and selection of statutory auditors and exercise of integrated supervision over commercial banks.

Section 28 allows the RBI to form rules regarding the exchange

Section 31 – in India only the RBI or the central government can issue and accept promissory notes that are payable on demand. However, cheque, that are payable on demand, can be issued by banks.