Economics: Functions of RBI

Main Functions

• Monetary Authority: It formulates implements and monitors the monetary policy. This helps in maintaining price stability and ensuring adequate flow of credit to productive sectors.
• Regulator and supervisor of the financial system:

It prescribes broad parameters of banking operations within which the country’s banking and financial system functions. This helps maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public.

• Manager of Exchange Control: It manages the Foreign Exchange Management Act, 1999. This helps to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
• Issuer of currency: It Issues and exchanges or destroys currency and coins not fit for circulation. This helps to give the public adequate quantity of supplies of currency notes and coins and in good quality.
• Developmental role: It performs a wide range of promotional functions to support national objectives.
• Related Functions
• Banker to the Government: It performs merchant banking function for the central and the state governments; also acts as their banker.
• Banker to banks: It maintains banking accounts of all scheduled banks.

Structure and functions of Central Board of Directors in RBI

The Central Board of Directors is at the top of the Reserve Bank’s organizational structure and the affairs of the RBI are governed by it. Important decisions of the RBI are taken by the Central Board as it is the apex authority of the RBI.

Constitution of the Central Board of Directors

The CBD members are appointed by the Central Government.  Section 8 of the RBI Act 1934 instructs about the composition of the Central Board. Members of the Board are appointed for a period of four years.

Functions: The Central Board has the primary authority and responsibility for the oversight of the Reserve Bank. General superintendence and direction of the Bank’s affairs is the core function of the CBD. It delegates specific functions to the Local Boards and various committees. The other wings of the RBI like Board for Financial Supervision and other technical committees derive their power from the CBD.

Members

1. Official Directors: The governor and four deputy governors are automatically members of the CBD and they are known as the official directors.
2. Non-official Directors: Besides the official directors, the RBI Act empowers the government to nominate non-official directors comprised of:
   1. Ten Directors from various fields and Two Government Officials
   2. Four Directors – one each from four local boards

Assistive bodies in RBI

There are two assistive bodies for Central Board of Directors viz. Board of Financial Supervision (BFS) and Board for Payment and Settlement Systems (BPSS). Both of these are chaired by RBI Governor.

Local Boards

There are four Local Boards one each for the four regions of the country in Mumbai, Calcutta, Chennai and New Delhi. Membership of the Local Boards consists of five members each. They are appointed by the Central Government for a term of four years.

While Central Board looks after general superintendence and direction of the Bank’s affairs, the function of the Local Boards is to advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks; to perform such other functions as delegated by Central Board from time to time.

Departments of RBI

1. Consumer Education and Protection Department
2. Corporate Strategy and Budget Department
3. Department of Banking Regulation
4. Department of Banking Supervision
5. Department of Communication
6. Department of Cooperative Bank Regulation
7. Department of Cooperative Bank Supervision
8. Department of Corporate Services
9. Department of Currency Management
10. Department of Economic and Policy Research
11. Department of External Investments and Operations
12. Department of Government and Bank Accounts
13. Department of Information Technology
14. Department of Non-Banking Regulation
15. Department of Non-Banking Supervision
16. Department of Payment and Settlement Systems
17. Department of Statistics and Information Management
18. Enforcement Department
19. Financial Inclusion and Development Department
20. Financial Markets Operation Department
21. Financial Markets Regulation Department
22. Financial Stability Unit
23. Foreign Exchange Department
24. Human Resource Management Department
25. Inspection Department
26. Premises Departmentt
27. Internal Debt Management Department
28. International Department
29. Legal Department
30. Monetary Policy Department
31. Risk Monitoring Department
32. Secretary’s Department
33. Central Vigilance Cell
34. Rajbhasha Department

Regional and sub-offices of RBI

The RBI has 20 regional offices, most of them in state capitals and 11 Sub-offices.

Training centres of RBI

The RBI Has five training establishments, Two, namely, College of Agricultural Banking and Reserve Bank of India Staff College are part of the Reserve Bank. Others are autonomous, such as, National Institute for Bank Management, Indira Gandhi Institute for Development Research (IGIDR), Institute for Development and Research in Banking Technology (IDRBT).

RBI’s Subsidiaries

These are fully owned, the  Deposit Insurance and Credit Guarantee Corporation of India(DICGC), Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL), and the National Housing Bank(NHB).

Board for Financial Supervision (BFS)

The Board for Financial Supervision (BFS) was constituted in November 1994 to supervise the money market institutions in the country. The BFS has been constituted as an autonomous body under the RBI.

The Board is drawn from the members of the Central Board of the Reserve Bank with the Governor as Chairman and one of the Deputy Governors as full time Vice-Chairman. The Board exercises the powers of supervision and inspection under the RBI Act, 1934 and the Banking Regulation Act, 1949 in relation to the different sectors of the financial system.

The BFS was initially given the mandate for supervision of commercial banks, Financial Institutions and NBFCs. Later, urban cooperative banks and primary dealers were also brought under the purview of the BFS. Since its formation, the BFS which meets every month, conducting on-site supervision of banks and off-site monitoring, based on quarterly reporting system.

Banking Supervision procedure

The main instrument of supervision in India is the periodical on-site inspection of banks that is supplemented by off-site monitoring and surveillance. Since 1995, on-site inspections are based on CAMELS (Capital adequacy, asset quality, management, earning, liquidity and systems and controls) model and aim at achieving the set objectives.

The domestic banks are rated on CAMELS model while foreign banks are rated on CALCS model (capital adequacy, assets quality, liquidity, compliance and systems). The frequency of inspections is generally annual, which can be increased / reduced depending on the financial position, methods of operation and compliance record of the bank.

Some of the initiatives taken by BFS include:

1. Restructuring of the system of bank inspections
2. Introduction of off-site surveillance,
3. Strengthening of the role of statutory auditors and
4. Strengthening of the internal defences of supervised institutions.