The Reserve Bank of India
is the central bank of the country. Central banks are a relatively recent
innovation and most central banks, as we know them today, were established
around the early twentieth century.
The Reserve Bank of India was set up on the basis of the
recommendations of the Hilton Young Commission. The Reserve Bank of India Act,
1934 (II of 1934) provides the statutory basis of the functioning of the Bank,
which commenced operations on April 1, 1935.
The Bank was constituted to
·
Regulate the issue of banknotes
·
Maintain reserves with a view to securing
monetary stability and
·
To operate the credit and currency system of the
country to its advantage.
The Bank began its operations by taking over from the
Government the functions so far being performed by the Controller of Currency
and from the Imperial Bank of India, the management of Government accounts and
public debt. The existing currency offices at Calcutta, Bombay, Madras,
Rangoon, Karachi, Lahore and Cawnpore (Kanpur) became branches of the Issue
Department. Offices of the Banking Department were established in Calcutta,
Bombay, Madras, Delhi and Rangoon.
Burma (Myanmar) seceded from the Indian Union in 1937 but the
Reserve Bank continued to act as the Central Bank for Burma till Japanese
Occupation of Burma and later up to April, 1947. After the partition of India,
the Reserve Bank served as the central bank of Pakistan up to June 1948 when the
State Bank of Pakistan commenced operations. The Bank, which was originally set
up as a shareholder's bank, was nationalized in 1949.
An interesting feature of the Reserve Bank of India was that
at its very inception, the Bank was seen as playing a special role in the
context of development, especially Agriculture. When India commenced its plan
endeavours, the development role of the Bank came into focus, especially in the
sixties when the Reserve Bank, in many ways, pioneered the concept and practice
of using finance to catalyze development. The Bank was also instrumental in
institutional development and helped set up institutions like the Deposit
Insurance and Credit Guarantee Corporation of India, the Unit Trust of India,
the Industrial Development Bank of India, the National Bank of Agriculture and
Rural Development, the Discount and Finance House of India etc. to build the
financial infrastructure of the country.
With liberalization, the Bank's focus has shifted back to
core central banking functions like Monetary Policy, Bank Supervision and
Regulation, and Overseeing the Payments System and onto developing the
financial markets.
