Government to Appoint New Governor of Reserve Bank of India (RBI)

Recently, the post of Reserve Bank of India Governor has been getting more attention and space in the mainstream media than it usually gets. The reason behind this,obviously, is the reappointment of Shri Raghuram  Rajan as the governor of RBI for the second consecutive term.

As the 23rd Governor of the Reserve Bank of India (RBI) Raghuram Rajan was appointed on 4 September 2013, for a term of three year period. The Reserve Bank of India is headed by the Governor. There are 4 deputy Governors, two of them are selected traditionally from the ranks of the RBI and are from the Bank’s Executive Directors.

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About RBI (Reserve Bank of India)

RBI, India’s central banking institution that superintends and manages the monetary policy of Indian rupee, initiated its function on 1 April 1935 in agreement with the provisions of the Reserve Bank of India Act, 1934. RBI was nationalized after India’s independence, on 1 January 1949.

The RBI, which is also a member Bank of the Asian Clearing Union, has a very important part in the development strategy of the Government of India. The RBI is also working, rather actively, towards promoting financial inclusion policy and is a leading member of Alliance for financial Inclusion (AFI).

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Background of Setting up of Reserve Bank of India

In order to response to and tackle economic troubles felt after the First World War on 1 April, 1935 the Reserve Bank of India was set up.

The conception of the idea of the Reserve Bank of India was based on guidelines submitted to the Royal Commission of Indian Currency and Finance in 1925 by Dr. B.R. Ambedkar. The Bank finally was established on the recommendation of the 1926 Royal Commission on India Currency and Finance that was also known as Hilton-Young Commission.

The basic functions of the Reserve Bank of India, as described in its preamble, include: to regulate the issue of bank notes, keep reserves to ensure monetary stability of India, and generally to handle the currency and credit system keeping in mind the best interests of the country.

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Role of the RBI

In November 1994 in order to control the financial institutions the Board of Financial Supervision (BFS) was formed; it serves as a Committee of the Central Board of Directors (CCBD) of the Reserve Bank of India. CCBD has four members who are appointed for two years. The main objective of BFS is to carry on consolidated supervision of the financial sector that includes commercial banks, financial institutions and non-banking finance companies.

One of the important functions of the BFS is to enhance the quality of the statutory audit and internal audit functions in banks and financial institutions. The BSF also scrutinizes the working of Development of Banking Supervision (DBS), Department of Non-Banking Supervision (DNBS) and Financial Institution Division (FID) and imparts directions on regulatory and supervisory issues.

The Reserve Bank of India also functions as the regulator and supervisor of the financial system and sets broad frontiers of banking operations within which the banking and financial system of the country operates. The objectives of RBI playing the role of the regulator and the supervisor are to maintain and cement public confidence, protect the interests of depositors and cater cost-effective banking services to the public. The RBI keeps under its command the monetary supply and it has to take the decision on the design of the rupee banknotes as well as coins.

The Reserve Bank of India also works in the capacity of a central bank in which commercial banks hold account and can deposit money. It is the responsibility of the Reserve Bank of India to maintain banking accounts of all scheduled banks.

It falls within the ambit of the duty of the RBI to control the created by Commercial banks, through Cash Reserve Ratio (CRR), bank rate and open market operations. The RBI, playing a role of banker’s bank, helps in the clearance of cheque between the commercial banks and assist in inter-bank transfer of  funds.

RBI not only grants financial grants financial accommodation to scheduled banks but also performs the role of the lender of the last resort by catering emergency advances  to the banks. As the it Supervises the operation of the commercial banks, it can if the requirement demands, take action against these banks.

In the process of discharging its development role the RBI has to perform a vast range of promotional functions to aid and assist national objectives and industries. In this the RBI confronts a lot of inter-sectoral and local inflation-related problem that are generally results of the public sector’s dominant part.

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Appointment of the Governor of the RBI

Section 8 of the Reserve Bank of India Act states that the power to appoint the Governor is soley with the Union Government. Although, if the need arises, the term or a Governor of the RBI can be extended, it has a fixed, typically, term of 4 years. As the Government holds the office at the pleasure of the Central Government, s/he can be removed from office any time by the Central Government. The Criteria for the selection of the governor are – the person must be an economist of high standing, noticeable finance ministry official etc.

It is important to note here that the Governor of India, like Chairman of the Railway Board and National Security Advisor, is not a constitutional post.

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2 COMMENTS

  1. Please correct the info..RBI never had any past name. But u hav posted, Imperial Bank of India as it’s past name

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