RESERVE BANK OF INDIA

          Formation of the Reserve Bank of India

                                                          The need for the formation of a Central Bank for the country was felt long before. Several attempts were made, from time to time , to establish a Central Bank for the country. But, unfortunately, those attempts failed to bear fruits.

                                                           The  Imperial Bank of India, which came into existence in 1921, was expected to develop into a full-fledged Central Bank. But it could not do so.It performed only the functions of regulation of credit,serving as a banker to the banks and acting as a banker to the Government. The other central banking functions like the issue of notes and the control of foreign exchange were discharged by the Government.The other central banking functions like the issue of notes and the control of foreign exchange were discharged by the Government. The performance of the central banking functions by two different authorities with different policies was found to be defective from the point of view of the economic development of the country. Further, the Imperial Bank of India could not perform its central banking functions effectively. So, there was a renewed demand for a full-fledged Central Bank that could perform all the central banking functions. To go into the question of the establishment of a full-fledged Central Bank for the country, the Royal Commission on Currency and Finance, popularly known as the Hilton Young Commission was appointed by the Government in 1925. The Commission, in its report submitted in 1926, strongly recommended the establishment of a new Central Bank for the country. The commission also recommended that the new Central Bank should be named as the Reserve Bank of India. The Government of India accepted the recommendations of  the commission, and introduced a bill in the Central Legislature in January, 1927.  But the bill could not be passed on account of difference of opinion amongst the members of the Legislature. The Government of India, therefore,postponed the idea of formation of a new Central Bank for sometime.

                                                            The question of establishment of a new Central Bank assumed importance once again. In 1933, the Central Banking Enquiry Committee recommended the establishment of the Reserve Bank of India at the earliest possible date for the purpose of developing banking facilities and bringing about rapid economic development in the country. In compliance with the recommendation of the committee, a fresh bill called the Reserve Bank of India Bill was introduced in the Central Legislature on 8th September, 1933. The bill was duly passed by the legislature, and became an act called the Reserve Bank of India Act on 6th March, 1934. The Reserve Bank of India was formally inaugurated on 1st April,1935.

    Capital of  the RBI

                                            The Reserve Bank was originally constituted as a shareholder's bank with a capital of Rs.5 crores divided into 5 lakhs fully paid up shares of Rs.100 each. The entire share capital was contributed by private shareholders with the exception of the nominal value of Rs.2.2 lakhs subscribed by the Central Government.

     Nationalisation

                                                                        After Independence, the public opinion was strongly in favour of nationalisation of the Reserve Bank.A decision was taken in this regard in 1947. Consequently the Reserve Bank of India ( Transfer of Public Ownership) Act, was passed in 1948. The entire share capital of the Bank was acquired by the Central Government against compensation to shareholders at Rs.118.10 per share. From 1st january 1949, it began to function as a government owned institution.

    Management

                                                                The management of Reserve Bank of India is vested with the Central Board of Directors comprising 20 members. The Board consist of the following members;
(i) One Governor and Four Deputy Governors appointed by the Central Government.
(ii)Four Directors nominated by the Central Government one from each of the Local Board.
(iii)Ten directors nominated by the Central Government.
(iv) One Government Official nominated by the Central Government.

                                                 The Governor and Duty Governors hold office for five years and are eligible for reappointment. They are full time officers of the Bank. The 10 directors nominated by the Central Government hold office for 4 years. The term of 4 directors appointed from Local Boards is related to their membership in the Local Board.

                                                The Governor is the Chief Executive of the Bank and the chairman of the Board of Directors. He has the powers of general superintendent to direct the affairs and business of the bank, subject to the regulations made by Central Board. In the absence of the Governor, the Deputy Governor nominated by him would exercise his powers. The Central Board must meet at least six times in a yea and not less than once in a quarter.

    Local Board

                                For each of the regional areas of the country, viz., Western,Eastern,Northern and Southern area, there is Local Board with headquaters at Mumbai, Kolkata, Chennai and New Delhi. The Local Board consist of five members appointed by the Central Government. The members should represent, as far as possible, territorial and economic interest and interest of co-operative and indigenous banks. They are appointed for a term of four years and eligible for reappointment.
   The functions of  board are two-fold;
(i) Advising the Central Board on such matters as may be referred to them.
(ii) Performing other duties delegated by the Central Board from time to time.
    The Board has delegated some of its functions to a committee called Committee of the Central Board . It consist of the Governor, the Deputy Governors and the Directors representing or resident of the area in which the meeting is held. The committee meets once in a week at the office of the Bank.

     Functions of Reserve Bank

                                                 Reserve Bank of India has been performing the usual and traditional functions of a Central Bank. According to the preamble to the Reserve Bank of India Act, the main function of the Reserve Bank is to regulate the issue of Bank notes and the keeping of reserve with a view to secure monetary stability in India and generally to operate the currency and credit system of the country to its advantage. The rapid economic development during the 1950's necessitated the widening of bank's functions. It undertakes a variety of developments and promotional activities. The institutionalization of savings through promotion of new specialized financing agencies are some of its additional responsibilities.