Banking Regulation

The Reserve Bank of India (RBI) is the central banking authority and the regulator of Indian Banking System. RBI draws its regulatory powers from Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949. Banking regulation is not peculiar to India. Every country regulates its banking system through some authority.

For example, the Bank of England regulates the banking system in UK. Similarly, the Federal Reserve Board is the regulator of the banking system in USA.

Important of Banking Regulation –

A. Public confidence and trust

B. Investors’ interest

C. Fair and efficient financial markets

D. Adherence to rules.

Constitution of RBI

RBI was constituted under the Reserve Bank of India Act, 1934 and started functioning from 1 April, 1935. It is the oldest among central banks operating in developing countries. Its headquarters are in Mumbai.

A. Ownership

RBI is a state-owned institute under the Reserve Bank (Transfer of Public Ownership) of India Act, 1948. The Act empowers the Union Government to issue such direction to RBI as is necessary in public interest. However, the union Government must consult the Governor before issuing the directions.

B. Control

The control of RBI vests in the Central Board of Directors. The Central Board of Directors compromise the Governor, 4 Deputy Governors and 15 Directors.

C. Appointment

The Union Government appoints the Governor and Four Deputy Governors and also nominates the 15 Directors.

Objective of RBI

A. Monetary Stability

B. Financial Stability

C. Payment System

D. Credit Allocation

E. Price Stability

F. Development of Financial Markets

Function of RBI

A. Issue of Notes

B. Government’s Banker

C. Banker’s Bank

D. Development of the Financial System

E. Exchange Control

F. Monetary Control