Everything You Need To Know About RBI

RBI, as we already know, is the father of all banks in India but what does it actually mean? How does it run & what does it do exactly? How about I break it down for you in the simplest way possible?

We will be trying to understand RBI from a business perspective since the majority of us are business students including me. So, there are numerous ways to approach this topic but the most relevant according to me remains the business side of it all. Let’s begin.

What is RBI?

In the most literal sense, RBI is the regulatory body of the Indian payment and banking system, meaning – everything related to money and its circulation right from the currency to its supply is looked after by RBI. Imagine RBI as a CEO of monetary policy. Make no mistake in acknowledging that a CEO needs a founder, director, and a hell lot of managers to run a successful business. Keeping that in mind, we’ll keep aside every other essential contributor and focus on our CEO for this one. Meaning, other influential govt entities will not be thoroughly studied in this article but simplified through a short, quick, and compact blog for your understanding.

Reserve Bank of India – The Bank of Banks

Every national bank in this country is bound to be an account holder in RBI, meaning it is the bank of banks. But what is more interesting to understand is that every bank irrespective of it is nationalized or not, is dependent on the authoritative and formulating policies of RBI determining which banking activities are okay and which aren’t. This is to help you identify which financial institutions lending you money are official ‘banks’ and which aren’t. Now you must be wondering what kind of an idiot requires to know if something is a bank or not? Well, you can name your money lending institution as a bank but it doesn’t automatically become a bank unless you make it as per RBI regulations.

RBI not only has full control over the economic policy of India, but also regulates it, keeps a close eye on the supply of money, and leads the flow as per plan along with necessary leverages allotted to it by the constitution as per the Reserve Bank of India, 1934. That’s how RBI was born. Just like every other government institution, RBI gets its powers from the constitution and acts such as –

Public Debt Act, 1944
Banking Regulation Act, 1949
Foreign Exchange Management Act of 1999.
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Chapter II)
Government Securities Act, 2006
Credit Information Companies(Regulation) Act, 2005
Government Securities Regulations, 2007
Payment and Settlement Systems Act, 2007
and BPSS Regulations, 2008
Payment and Settlement Systems Regulations, 2008 and Amended up to 2011
Factoring Regulation Act, 2011
The Payment and Settlement Systems (Amendment) Act, 2015 – No. 18 of 2015

RBI formulates, implements, and monitors India’s monetary policy. It is one of the top 10 economic policies of India. The bank’s management objective is to maintain price stability and ensure that credit is flowing to productive economic sectors. It is argued that the term ‘productive sectors’ is so subjective that you can write a couple of books through a variety of perspectives without fully containing all aspects of it and we’re not even attempting to pretend that we’ll be able to do justice to it either. However, this is our humble attempt to simplify its complexities with respect to its role in the economic and business sense from the sole perspective of business students.

Find history of RBI in detail here.

Structure of RBI as an organization –

Every organization needs to have a well defined structure of authority and hierarchies so that the roles and duties can be divided according to positions, teams, and departments. Below is the structure of RBI:

Structure of RBI

What does the Governor do? – His signature runs everything monetary. He looks after the formulation of nationwide policies, sets parameters, and monitors flow of credit through banks.

Deputy Governors are subordinate to Governor, they do everything Governor does but with more hands-on literally supervision, implementation, inspection, and enforcement part. Yes. The main thing.

Executive Directors, Principal Chief General Managers, and Chief General Managers are 3 stages of Top Management in that sequence.

Deputy General Managers, Assistant General Managers, and Managers, form the mid-level management.

Assistant Managers are the subordinates of Managers looking after the same duties but within a specific area of expertise or requirement.

Then the support staff is the vehicle that runs the whole organization.

Duties of RBI –

1) Controlling inflation

2) Issue currency notes

3) Banking on behalf of the government

4) Regulate & lead payment system

5) Regulate + control commercial banks in the country, lend money to them when needed, and keep custody of their cash reserves.

6) Keep custody of the Country’s Foreign Currency Reserves and provide a stable exchange rate of the currency

7) Control credit as per economic priorities set by the government

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