Reserve Bank of India

(Constitution, Management
&
Functions)

Submitted to- Submitted by-

Mr. Vibha Srivastava Tejinder Singh
(Assistant Professor) LL.B 5th semester
 Introduction
The Reserve Bank of India was set up on the
basis of the recommendations of the Hilton
Young Commission. The Reserve Bank of
India Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the Bank,
which commenced operations on April 1, 1935.
The Bank was constituted to-
Regulate the issue of banknotes
Maintain reserves with a view to securing
monetary stability and
To operate the credit and currency system of
the country to its advantage.
RBI commencement- Newspaper Clipping
 Constitution

The bank was established as a shareholder`s

bank with an authorized and paid-up capital of
Rs. 5 crores divided into shares of Rs. 100 each.
After independence, under the Reserve Bank
Act, 1948, the bank was nationalized, after
paying compensation to the shareholders at the
market price of the share.
 Management:
The affairs if the RBI are managed by the Central Board of Directors
consisting of:
Governor and not more than 4 Deputy Governors appointed for a period not more
than 5 years.
Four Directors, one from each of the four local boards.
The other Directors.
One Government Official.
All the Directors and the officials are nominated for 4 years each by the
Central Government. To look after the affairs there are 4 local Boards,
one at each of the cities of Bombay, Calcutta, Delhi and Madras, each
Board consisting of 5 members appointed for 4 years by the Central
Government.
Urijit Patel is currently serving as 24th Governor of Reserve Bank of
India (RBI) since September 2016.
First Central Board of Directors
 Functions
1) Regulator Of Currency:
The Reserve Bank of India is the bank of
issue. It has the monopoly of note issue.
Notes issued by it circulate as legal money. It
has its separate department which issue
notes and coins to commercial banks.
2) Banker, Fiscal Agent and Advisor
To The Government:
RBI everywhere acts as bankers, fiscal
agent and advisor to their respective
governments. As banker to the
government, the central bank keeps the
deposits of the central and state
governments and makes payments on
behalf of the governments. But it does not
pay interest on government deposits.
3) Custodian Of Cash Reserves Of
Commercial Banks:
Commercial banks are required by law to
keep reserves equal to a certain
percentage of both time and demand
deposits liabilities with the RBI. It is on the
basis of these reserves that the RBI
transfers funds from one bank to another
to facilitate the clearing of cheques. Thus
the RBI acts as the custodian of the cash
reserves of commercial banks and helps in
facilitating their transactions.
4) Custody And Management Of Foreign
Exchange Reserves:
The RBI keeps and manages the foreign
exchange reserves of the country. It sells
gold at fixed prices to the authorities of
other countries. It also buys and sells
foreign currencies at international prices.
5) Lender Of The Last Resort:

By granting accommodation in the form of

re-discounts and collateral advances to
commercial banks, bill brokers and
dealers, or other financial institutions, the
RBI acts as the lender of the last resort.
6) Clearing House For Transfer And
Settlement:

As bankers bank, the RBI acts as a

clearing house for transfer and settlement
of mutual claims of commercial banks.
Since the RBI holds reserves of
commercial banks, it transfers funds from
one bank to other banks to facilitate
clearing of cheques.
7) Controller Of Credit:

The most important function of RBI is to

control the credit creation power of
commercial bank in order to control
inflation and deflation pressures within this
economy. These involve selective credit
control and direct action.