RBI — Structure and Functions
The Reserve Bank of India (RBI) was established on April 1, 1935 under the Reserve Bank of India Act, 1934. It was nationalised on January 1, 1949. Headquarters: Fort, Mumbai. The Governor is appointed by the Central Government for a 4-year term.
RBI's Key Functions
- Monetary Authority: Formulates and implements monetary policy. Uses repo rate, reverse repo, CRR, SLR, and OMO as tools.
- Currency Issuer: Issues all currency notes except ₹1 notes (issued by Ministry of Finance). Manages currency supply.
- Banker to Banks: Maintains CRR deposits, provides liquidity through Repo, acts as lender of last resort.
- Banker to Government: Manages government borrowing program (G-Sec issuance), maintains government accounts.
- Regulator of Banks: Licenses, inspects, and regulates commercial banks, cooperative banks, RRBs, NBFCs, and payment banks.
- Foreign Exchange Manager: Manages India's forex reserves, implements FEMA regulations, intervenes in INR markets.
Monetary Policy Tools
| Tool | Definition | Current Rate (2025) | Effect of Increase |
|---|---|---|---|
| Repo Rate | Rate at which RBI lends overnight to banks (against G-Secs) | 6.25% | Borrowing costly → credit shrinks → inflation controlled |
| Reverse Repo Rate | Rate at which RBI borrows from banks overnight | 3.35% (fixed) | Banks park more with RBI → less money in system |
| CRR | % of NDTL (Net Demand and Time Liabilities) banks must keep as cash with RBI | 4% | Less money with banks → credit contraction |
| SLR | % of NDTL banks must maintain in G-Secs, gold, or approved securities | 18% | More forced G-Sec investment → less for credit |
| MSF (Marginal Standing Facility) | Emergency overnight borrowing by banks at Repo+0.25% | 6.50% | Safety valve for sudden liquidity need |
| Bank Rate | Rate for longer-term borrowing; penal rate for CRR shortfall | 6.75% | Signals long-term rate stance |
Types of Banks
- Commercial Banks: Public Sector (SBI, PNB, BOB...), Private Sector (HDFC, ICICI, Axis...), Foreign Banks (Citi, HSBC)
- Regional Rural Banks (RRBs): 43 RRBs serving rural areas, jointly owned by Central Govt/State Govt/Sponsor Bank
- Small Finance Banks (SFBs): AU, Equitas, ESAF, Fincare etc. — focus on underserved segments
- Payment Banks: Airtel, Jio, India Post — can accept deposits up to ₹2 lakh but cannot lend
- Cooperative Banks: Urban Cooperative Banks (UCBs) and State Cooperative Banks
- Development Finance Institutions: NABARD (agriculture), SIDBI (MSME), NHB (housing), EXIM Bank (trade)
Financial Inclusion Schemes
- PMJDY (PM Jan Dhan Yojana): Zero-balance savings account for unbanked. Launched Aug 28, 2014. 50 crore+ accounts opened. Includes RuPay debit card with ₹2 lakh accident insurance.
- PMSBY (PM Suraksha Bima Yojana): ₹2 lakh accident insurance at ₹20/year premium.
- PMJJBY (PM Jeevan Jyoti Bima Yojana): ₹2 lakh life insurance at ₹436/year.
- Atal Pension Yojana: Government-co-contributed pension for unorganised sector workers.
- Mudra Yojana: Loans up to ₹10 lakh for micro-entrepreneurs (Shishu/Kishor/Tarun tiers).
- Stand Up India: Loans ₹10 lakh–₹1 crore for SC/ST/Women entrepreneurs.
Priority Sector Lending (PSL)
RBI mandates banks lend a minimum % of their Adjusted Net Bank Credit (ANBC) to priority sectors:
- Total PSL: 40% of ANBC (domestic banks), 40% for foreign banks with 20+ branches
- Agriculture: 18% of ANBC (of which 10% to small/marginal farmers)
- Weaker Sections: 12% of ANBC
- MSME: No specific sub-limit (part of overall 40%)