History
1935 - 1950
The central bank was founded in 1935 to respond to economic troubles after the first world war. The Reserve Bank of India was set up on the recommendations of the Hilton Young Commission. The commission submitted its report in the year 1926, though the bank was not set up for another nine years. The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as to regulate the issue of Bank Notes, to keep reserves with a view to securing monetary stability in India and generally to operate the currency and credit system in the best interests of the country. The Central Office of the Reserve Bank was initially established in Kolkata, Bengal, but was permanently moved to Bombay (now Mumbai) in 1937. The Reserve Bank has continued to act as the central bank for Myanmar till Japanese occupation of Burma and later up to April 1947, though Burma seceded from Indian Union in 1937. After the partition, the Reserve bank served as the central bank for Pakistan up to June 1948 when the State Bank of Pakistan commenced operations. Though originally set up as a shareholder's bank, the RBI has been fully owned by the Government of India since its nationalization in 1949.
1950 - 1960
Between 1950 and 1960 the Indian government developed a centrally planned economic policy and focused on the agricultural sector. The administration nationalized commercial banks and established, based on the Banking Companies Act, 1949 (later called Banking Regulation Act) a central bank regulation as part of the RBI. Beside that the central bank was ordered to support the economic plan with loans
1960 - 1969
As a result of bank crashes the reserve bank was requested to establish and monitor a deposit insurance system. It should restore the trust in the national bank system and was initialized on 7. December 1961. The Indian government founded funds to promote the economy and used the slogan Developing Banking. The Gandhi administration and their successors restuctured the national bank market and nationalized a lot of institutes.As a result the RBI had to play the central part of control and support of this public banking sector.
1969–1985
Between 1969 and 1980 the Indian government nationalized 20 banks. The regulation of the economy and especially the financial economic was reinforced by the Gandhi administration and their successors in the 1970s and 1980s.[8] The central bank became the central player and increased her policies for a lot of taks like interests, reserve ratio and visible deposits.[9] The measures aimed at a better economic development and had a huge effect on the company policy of the instituts. The banks lent money in selected sectors like agra business and small trade companies.
The branch was forced to establish two new offices in the country for every new founded office in a town.The Oil crises in 1973 resulted in increasing inflation and the RBI restricted the monetary policy to reduce the effects.
1985–1991
A lot of committees analysed the Indian economy between 1985 and 1991. Their results had an effect on the RBI. The Board for Industrial and Financial Reconstruction, the Indira Gandhi Institute of Development Research and Security & Exchange Board of India investigated the national economy as a hole and the security and exchange board proposed better methods for more effective markets and the protection of investor interests. The Indian financial market was a leading example for - so called - "financial repression" (Mackinnon uand Shaw).
The Discount and Finance House of India began his operations on the monetary market in April 1988, the National Housing Bank, founded in July 1988, was forced to invest in the propoerty market and a new financial law improved the versatility of direct deposit by more secirity measures and liberalisation.
1991–2000
The national economy came down in July 1991 and the Indian rupee was devalued. The currency lost 18% related to the US-Dollar and the Narsimahmam Committee adviced to restructure the financial sector by a temporal reduced reserve ratio as well as the statutory liquidity ratio. New guidelines were published in 1993 to establish a private banking sector. This turning point shound reinforce the market and was often called neo-liberal The central bank deregulated the bank interests and some sectors of the financial market like the trust and the proporty market. This first phase was a success and the central government forced a diversity liberalisation to diversify the owner structures in 1998.
The National Stock Exchange of India took the trade on in June 1994 and the RBI allowed nationalized banks in July to interact with the capital market to reinforce their capital base. The central bank founded a subsidiary company - the Bharatiya Reserve Bank Note Mudran Limited - in February 1995 to produce banknotes.
since 2000
The Foreign Exchange Management Act from 1999 came into force in June 2000. It should improve the foreign exchange market, international investments in India and transactions. The RBI promoted the development of the financial market in the last years, allowed online banking in 2001 and established a new payment system in 2004 - 2005 (National Electronic Fund Transfer). The Security Printing & Minting Corporation of India Ltd., a merger of nine institutions, was founded in 2006 and produces banknotes and coins.
The national economy's growth rate came down to 5,8% in the last quarter of 2008 - 2009[22] and the central bank promotes the economic development.
Main Functions
Monetary Authority
The institution is also the regulator and supervisor of the financial system and prescribes broad parameters of banking operations within which the country's banking and financial system functions. Objectives are maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective redressal of complaints by bank customers. The RBI controls the monetary supply, monitors economic indicators like the gross domestic product and has to decide the design of the rupee banknotes as well as coins.
Manager of exchange control
The central bank manages to reach the goals of the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
Issuer of currency
The bank issues and exchanges or destroys currency and coins not fit for circulation. Objectivs are giving the public adequate supply of currency of good quality and to provide loans to commercial banks to maintain or improve the GDP. The basic objectives of RBI are to issue bank notes, to maintain the currency and credit system of the country to utilize it in its best advantage, and to maintain the reserves. RBI maintains the economic structure of the country so that it can achieve the objective of price stability as well as economic development, because both objectives are diverse in themselves.
Developmental role
Related functions
The RBI is also a banker to the Government and performs merchant banking function for the central and the state governments. It also acts as their banker. The National Housing Bank (NHB) was established in 1988 to promote private real estate acquisition. The institution maintains banking accounts of all scheduled banks, too.
There is now an international consensus about the need to focus the tasks of a central bank upon central banking. RBI is far out of touch with such a principle, owing to the sprawling mandate described above. The recent financial turmoil world-over, has however, vindicated the Reserve Bank's role in maintaining financial stability in India.
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