RBI & Policy
Economics · RBI और नीति
📋Quick Overview
The Reserve Bank of India (RBI) was established on 1 April 1935 based on the recommendation of the Hilton Young Commission (Royal Commission on Indian Currency and Finance, 1926). It was originally a private shareholders' bank and was nationalized on 1 January 1949 under the RBI (Transfer to Public Ownership) Act 1948. RBI is headquartered in Mumbai. The first Governor was Sir Osborne Smith (British) and the first Indian Governor was C.D. Deshmukh. The current Governor is Sanjay Malhotra (since December 2024, verify for latest).
RBI was established on 1 April 1935 (Hilton Young Commission) and nationalized on 1 January 1949
RBI prints all currency notes (except Re 1 note which is issued by Ministry of Finance). All coins are minted by Government of India.
📖Functions of RBI
- •Monetary Authority — formulates and implements monetary policy to maintain price stability
- •Regulator & Supervisor of Financial System — prescribes banking regulations, protects depositors
- •Issuer of Currency — sole authority to issue banknotes (except Re 1 note). Uses Minimum Reserve System (since 1957) — Rs 200 crore minimum reserve (Rs 115 cr gold + Rs 85 cr foreign currency)
- •Banker to the Government — manages govt accounts, handles receipts & payments, manages public debt
- •Banker's Bank — lender of last resort, maintains CRR of banks, operates clearing houses
- •Foreign Exchange Management — manages forex reserves under FEMA 1999 (replaced FERA 1973)
- •Developmental Role — financial inclusion, priority sector lending norms, rural credit
📖Monetary Policy Tools — Key Rates
| Tool | Definition | Current Rate (Approx) |
|---|---|---|
| Repo Rate | Rate at which RBI lends SHORT-TERM money to commercial banks (against govt securities) | 6.25% |
| Reverse Repo Rate | Rate at which RBI BORROWS money from commercial banks (banks park excess funds with RBI) | 3.35% |
| CRR (Cash Reserve Ratio) | % of NDTL (deposits) banks MUST keep with RBI as CASH. No interest earned. | 4% |
| SLR (Statutory Liquidity Ratio) | % of NDTL banks must maintain in liquid assets (gold, govt securities, cash). Kept with bank itself. | 18% |
| MSF (Marginal Standing Facility) | Emergency borrowing from RBI at Repo + 0.25%. Banks can dip into SLR up to 2% | 6.50% |
| Bank Rate | Rate at which RBI lends LONG-TERM to banks (without collateral). Penal rate. Same as MSF rate. | 6.50% |
CRR = kept with RBI (no interest). SLR = kept with bank itself (in liquid assets). This is the KEY difference!
📖Monetary Policy Committee (MPC)
- •MPC was constituted in 2016 under Section 45ZB of the amended RBI Act 1934
- •6 Members: 3 from RBI (Governor as Chairman, Deputy Governor, one RBI officer) + 3 external members appointed by Central Government
- •Governor has casting vote in case of tie
- •Inflation target: 4% CPI (+/- 2%), i.e., 2% to 6% range (based on Urjit Patel Committee)
- •MPC meets at least 4 times a year (currently 6 bi-monthly meetings)
- •MPC decides ONLY the Repo Rate. Other rates are decided by RBI separately.