Important sections of RBI Act, 1934 Free e-book

Important sections of RBI Act, 1934

The Indian Institute of Banking and Finance holds an exam to fill the position of Junior Associate of the
Indian Institute of Bankers, which is currently vacant. The exam is held twice a year in two cycles, i.e., in May
and November. To help you in your preparation for this exam, let’s have a look at Important sections of RBI
Act, 1934 in detail.

Important sections of RBI Act, 1934

The Indian Banking System is primarily governed by 2 laws:

• BANKING REGULATION ACT, 1949

The Act provides a framework under which commercial banking in India is supervised and regulated
in India. It is also applicable for co-operative banks. It is not applicable to primary agricultural credit
society and cooperative land mortgage bank.

• RESERVE BANK OF INDIA ACT, 1934

The Act gives authority to RBI to regulate the issue of bank notes, secure monetary stability in India
and operate the currency and credit system of the country.

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Important sections of RBI Act, 1934 Free e-book

Other authorities

There are various additional financial sector authorities in India, notably the

• Securities Exchange Board of India (SEBI), which is the country's securities market regulator.
• India's Insurance Regulatory and Development Authority (IRDAI), which oversees the insurance
industry.
• The Insolvency and Bankruptcy Board of India (IBBI), which oversees the insolvency process in India
under the Insolvency and Bankruptcy Code (IBC).

RBI works closely with the other regulatory authorities as and when necessary.

For the purpose of this e-book let us go in detail about the Reserve Bank of India Act, 1934.

History of RBI

On April 1,1935 the Reserve Bank of India (RBI) began operations as India's central bank as a private
shareholders' bank with a paid-up capital of Rs. 5 crore (rupees fifty million).

In 1949, the Indian government nationalised the bank using The Reserve Bank (Transfer of Public
Ownership) Act of 1948.

The Bank's Central Office is located in Mumbai and has branches in Ahmedabad, Bangalore, Chennai, Delhi,
New Kolkata, Hyderabad, Kanpur,Nagpur and Patna.

Important sections of RBI act

Section 3 :

Authorises the RBI to take over the management of the currency from the Central Government and carry on
the business of banking in accordance with the provisions of this Act.

Section 7 :

Central Government may from time to time give directions to the Bank, if it is a matter of public interest
after consulting with the RBI Governor.

Section 17 :

Mentions the functions of RBI :

• Monetary Authority : Formulates, implements, and monitors the monetary policy.

• Regulator and supervisor of the financial system : Prescribes broad parameters of banking operations
within which the country’s banking and financial system functions.
• Manager of Foreign Exchange : Manages the Foreign Exchange Management Act, 1999.
• The issuer of currency : Issues and exchanges or destroys currency and coins not fit for circulation.
• Developmental role : Performs a wide range of promotional functions to support national objectives.
• Regulator and Supervisor of Payment and Settlement Systems : Introduces and upgrades safe and
efficient modes of payment systems in the country to meet the requirements of the public at large.
• Related Functions :
 As a banker to the Government performs merchant banking function for the central and the state
governments; also acts as their banker.
 As a banker to banks it maintains banking accounts of all scheduled banks.
Important sections of RBI Act, 1934 Free e-book

Section 18 :

Mentions the emergency provisions that RBI can take for the purpose of regulating credit in the interests of
Indian trade, commerce, industry, and agriculture which includes -

• Purchase, sell or discount any bill of exchange or promissory note

• Make loans or advances to –
a) a State co-operative bank, or
b) a co-operative society on the recommendation of a State co-operative bank
c) any other person, repayable on demand or on the expiry of fixed periods (Not more than 90
days)

Section 21 :

It entrusts the RBI with the management of the public debt and with the issue of loans to Central
government.

Section 22 :

It gives the RBI the sole right to issue bank notes in the country.

Section 24 :

It mentions the denominations of the notes that can be in circulation. On the recommendation of the RBI,
the Central Government can direct the discontinuance of issue of any particular bank notes.

Section 28 :

It empowers the RBI to form laws to deal with lost, stolen, mutilated or imperfect currency notes of the
Government of India.

Section 31 :

Empowers RBI and Central government to issue demand bills and promissory notes

Section 42 :

This section mentions about the cash reserves that the scheduled banks have to keep with the RBI.
Important sections of RBI Act, 1934 Free e-book

Section 45 :

Mentions the powers of RBI to collect credit information from financial institutions, determine policy and
issue directions, constitute Monetary Policy Committee and target inflation

Section 46 :

Mentions the Reserve funds that Central Government needs to maintain with the RBI

Section 58 :

Gives the power to make regulations to the RBI board

These were some important sections of the Reserve Bank of India Act, 1934. Below we provide you with
some previously asked questions of JAIIB.

1. Who is the governor of Reserve Bank of India (RBI)?

A. Urjit Patel
B. Ajay Thyagi
C. Raghuram Rajan
D. Shaktikanta Das

Answer : D

2. Which of the following got RBI clearance to register and function as a non-banking finance company
(NBFC) recently?

A. Exim Bank
B. Asian Development Bank
C. TIHCL
D. BSTDB

Answer: C

3. Which of the following statements regarding RBI is correct:

A. Central government has the authority to issue license to banks

B. Entire capital of RBI is held by Central Govt & State Governments
C. The Economic Affairs committee appoints the governor of RBI
D. Central Govt. can issue directions to RBI under RBI Act

Answer : D

4. Which of the following statements are correct:

A. Central government can withdraw its reserves with RBI

B. The primary regulator of banks is RBI
C. Banking business of all types is regulated only by RBI
D. If a banking license is cancelled, the appeal lies to RBI

Answer : B
Important sections of RBI Act, 1934 Free e-book

5. Cancelling a bank license can be done by :

A. RBI on recommendation of Central Government

B. Central Government without consulting RBI
C. RBI after consulting Central Government
D. Central government on recommendation of RBI

Answer : D

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