From UPSC perspective, the following things are important :
Prelims level: RBI, its regulatory functions, major achievements
Mains level: NA
Why in the news?
Recently, the RBI celebrated its 90th year in Mumbai, marking a significant milestone.
Dr. Ambedkar’s Role in the Establishment of RBI:
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About Reserve Bank of India (RBI)
- The RBI is the central bank and monetary authority of India.
- It was established on April 1, 1935, under the Reserve Bank of India Act, 1934.
- Its idea was incepted from the recommendations of the Hilton Young Commission.
- Sir Osborne Arkell Smith, an Australian, served as the inaugural Governor.
- He was succeeded by Sir C D Deshmukh, the first Indian to hold the position.
- It is a centralized institution for India to effectively regulate its monetary and credit policies.
- RBI had its initial headquarters in Kolkata, later moving permanently to Mumbai in 1937.
- Initially, the RBI operated as a privately owned entity until its full nationalization in 1949.
Functions and Initiatives:
- Monetary Authority: The RBI controls the supply of money in the economy to stabilize exchange rates, maintain a healthy balance of payment, and control inflation.
- Issuer of Currency: Sole authority to issue currency and combat circulation of counterfeit notes.
- Banker to the Government: Acts as a banker to both the Central and State governments, providing short-term credit and financial advisory services.
- Lender of Last Resort: Provides emergency liquidity assistance to banks during crises.
- Custodian of Foreign Exchange Reserves: Manages foreign exchange reserves and administers the Foreign Exchange Management Act, 1999 (FEMA).
- Regulator and Supervisor of Payment and Settlement Systems: Oversees payment and settlement systems in the country, ensuring efficiency and security.
- Credit Control and Developmental Role: Promotes credit availability to productive sectors and fosters financial infrastructure development.
Transformative Reforms initiated by the RBI
- Green Revolution (1960s-1970s): Supported agricultural growth through credit facilities and rural credit accessibility enhancements.
- Banks Nationalization (1969): Aimed at aligning banking sector objectives with national policy goals.
- Priority Sector Lending (1972): Ensures timely credit flow to key sectors of the economy.
- Economic Liberalization (1991): Opened up the economy to global markets, fostering market-oriented growth.
- Unified Payment Interface (UPI), 2016: Enabled seamless and instant transactions across India.
- Inflation Targeting Framework, 2016: Set inflation targets to guide monetary policy decisions.
- Bharat Bill Payment System (BBPS), 2019: Launched an integrated bill payment system for customer convenience.
- Aadhar-based eKYC (2019): Streamlined customer authentication processes for financial institutions.
- Emergency Credit Line Guarantee Scheme (ECLGS), 2020: Provided credit assistance to SMEs affected by the COVID-19 pandemic.
- Central Bank Digital Currency (2022): RBI is actively exploring the issuance of a CBDC known as e₹ (digital Rupee).
- Cryptocurrency Regulation (2022): RBI has maintained a consistent stance against cryptocurrencies, advocating for an outright ban on them (after China and El Salvador imposed the complete ban). In 2020, the Supreme Court of India removed the ban on cryptocurrencies imposed by RBI.
- Payment Vision 2025 Document (2023): The goals and vision of the RBI, are categorised in the Payments Vision 2025 documents into five anchor goalposts – Integrity, Inclusion, Innovation, Institutionalisation and Internationalisation.
PYQ:2012: The Reserve Bank of India (RBI) acts as a bankers’ bank. This would imply which of the following? 1. Banks retain their deposits with the RBI. 2. The RBI lends funds to the commercial banks in times of need. 3. The RBI advises the commercial banks on monetary matters. Select the correct answer using the codes given below: (a) 2 and 3 only (b) 1 and 2 only (c) 1 and 3 only (d) 1, 2 and 3
2013: Consider the following statements: 1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government. 2. Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in public interest. 3. The Governor of the RBI draws his power from the RBI Act. Which of the above statements are correct? (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3 |
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