Reserve Bank Of India

Every country today has a Central Bank of its own which

controls the entire banking system.
Few countries had a Central Bank in the 19th Century. But
the popularity of it increased in the 20th Century.
After the First World War, an International Monetary
Conference was held at Brussels in 1929 to find a solution to
the problem of recurring economic crisis which confronted
the World at that time.
This Conference recommended the setting up of a Central
Bank in every country.
The Bank of England is the oldest Central Bank in the
World. In USA it was established in the year 1913.
 Definition of Central Bank
It occupies a pivotal position in the monetary and banking
structure of the country.It is undisputed leader of the money market.
So, it supervises, controls and regulates the activities of the
commercial banks affiliated in country.
As the highest monetary institution in the country, it is charged
with the duty and responsibility of carrying out the monetary policy
by the government.
KISCH AND ELKIN: “ The essential function of a central bank
is the maintenance of the stability of the monetary standard.”
R G HAWTREY: “ The essential characteristic of a central bank
is its function as the lender of the last resort.”
W A SHAW: “ The one true, but at the same time. All-sufficing
function of a central bank is control of credit.”
R S SAYERS: “ The business of a central bank as distinguished from a
commercial bank is to control the commercial banks in such way as to
promote general monetary policy of the state.”

SAMUELSON: “ A central bank is a bank of bankers. Its duty is to

control of monetary base .. and through control of this high-powered
money to control the community’s supply of money.”

So, it can be defined precisely as “ apex banking and monetary

institution whose main function is to control, regulate and
stabilize the banking and monetary system of the country in the
national interests.”
 NECESSITY OF A CENTRAL BANK

1 Control of credit
2 Issue of paper currency
3 Economic help to the commercial banks
4 Implementation of the government’s
monetary policy
o1 The central bank is always inspired
by the spirit of national welfare
o 2 Monetary and financial stability
o 3 Freedom from political influence
o 4 No competition with member
banks
1) The central bank enjoys Monopoly of note issue.
a) Uniformity in the monetary system.
b) Greater public Confidence
c) Elasticity in the Monetary System.
d) Control on Credit Creation.
e) Profit for the Government.
f) Stability in the Internal and Expertly value of money.
Prior to 1934 many attempts have been made to set up a
Central Bank in the country. But such attempts failed to
bear any fruit.
In 1921 the Government of India established the
Imperial Bank of India to serve as the Central Bank of
India. But it did not succeed in its functioning as the
Central Bank of the country.
In 1925, the Hilton Young Commission was appointed
by the Government to express the views.
It recommended for the establishment of a Brand new
Central Bank.
In 1929, the Central Banking Enquiry Committee again
made a forceful plea for the establishment of the Central
Bank for the country.
Consequently, RBI Act was passed in1934, and
RESERVE BANK STARTED FUNCTIOING FROM
1st April,1935.
Originally, the Bank was constituted
as a shareholders’ bank with a share
capital of Rs.5 crores. RBI came to
be nationalised on 1 January,1949
st

under the Reserve Bank Act 0f

1948.
 Administration and Management
Entire affairs of the Reserve Bank of India are administered
and managed by a Central Board of Directors. It consisted of
20 members.
COMPOSITION: Number
Governor 1
Deputy Governor 4
Directors nominated by each of the local bodies 4
Directors from various fields 10
Government Official from Ministry of Finance 1