How RBI was formed

The Reserve Bank of India is India's central bank and regulatory body under the jurisdiction of
Ministry of Finance, Government of India. It is responsible for the issue and supply of the Indian
rupee and the regulation of the Indian banking system. Wikipedia

Headquarters: Mumbai

Founded: 1 April 1935, Kolkata.

The RBI was setup on the basis of the recommendation of the Hilton Young Commission.

 What is Hilton Young Commission?

The Hilton Young Commission was a Commission of Inquiry appointed in 1926 to look into

the possible closer union of the British territories in East and Central Africa
Prior to the establishment of RBI the function of the central bank done by the
Imperial Bank of India.

Imperial Bank of India made by merging 3 presidencies bank of colonial India which was

BANK OF BANK OF BANK OF

MADRAS BOMBAY BENGAL
IMPERIAL
BANK OF
Until 1935 the Imperial Bank of India performed a number of function which are normally
carried out by a central banks.

 RBI commenced its operation as Commercial Bank. ( means it had majority of shares

belonging to private shareholders). So it continued to operate as private owned till

independence.
 1948 -RBI act of 1948 passed means All shares in the capital of the Bank were deemed
transferred to the Central Government on payment of a suitable compensation.
 1949 – RBI was nationalized.

GOI passed Banking Regulation Act of 1949 Gave RBI the power
to regulate other banks.

(1) Prohibition of Trading

(2) Non-Banking Assets
(3) Management
(4) Minimum Capital and Reserves
(5) Capital Structure
(6) Payment of Commission, Brokerage etc.
(7) Reserve Fund/Statutory Reserve
(8) Cash Reserve
(9) Liquidity Norms
(10) Restrictions on Loans and Advances and
(11) Accounts and Audit .
  1951 - Five year plan were introduced (the idea of five year plan was
adopted from Soviet union)
 1955 – RBI acquired controlling interest in Imperial Bank of India.

Imperial Bank of India renamed as State Bank of India.

 During 1951-1960 RBI was playing a special role in development in

agriculture sector in India.
 Immediately after independence India was running low on capital.
 Since it was the first five year plan, there were many projects, but
there were very less money, so Government of India need funds to
promote the economy.

For that Govt. Of India restructure and nationalize many

small and big banks and asked RBI to maintain and control the structure.

1960- Govt. Of India introduced Deposit Insurance Policy. During 1950s bank failures
were common phenomena. DIP seem as a measure to protect the depositors from the
loss of the savings by bank failures.

1967- 14 largest banks were merged and nationalized.

1969 1985

 Between 1969-1985 92% of banks were nationalized.

 RBI introduce intervention policies, (IR, CRR, SLR)
1962- Indo-China war
1965-Nationwide Drought, Indo-Pak War
1973- Global oil crisis.
1971- Indo-Pak War
1975- Emergency in India
All these above events substantially lowered the GDP growth.
1985 – India started facing BoP(Balance of payment)
problem.
Means India was importing more than that
exporting. And import debt was rising which went
till 1991.
 The condition was bad that India had no money that could even
support 3 weeks’ worth of imports.
 RBI had refuge any new credit.
 Foreign exchange was all time low.
 India was almost at the verge of bankruptcy

Then it is a GOLD which saved us.

 So, to meet BoP crisis the option of selling of gold was
considered.
  So, by selling the gold India could increase its foreign
reserves and pay for imports.

20 Metric tonnes of gold from Govt.

Of India account was airlifted then
sold to UBS.
After a few months gold was
repurchase and it was brought by
SBI and returned to Govt. Of India.

Manmohan Singh was the Finance Minister at that time.

He introduced reforms that liberalised Indian
Economy.
He converted this crisis to the opportunity.
 Before 1991 the role of RBI was to regulate the
banking sector.
But after 1991 financial reform introduced.
1. The main purpose of these reform were to reduce the role of
RBI from a regulator to facilitator.
2. Basically now RBI started working towards creating roadmap
in the ‘interest of the banks’.
3. This meant the finance sector was allowed to take decision on
its own, without having consult to the RBI.
  Then private sector as well as foreign banks starts
arriving India.
 The banks were given to open branches without
taking appearance from RBI.

Exchange rates became a

1993 market determined.

1994 Nationalized bank were

allowed to tap the capital

1995 Banks were allowed to fix

their own interest rates.

1999
RBI came up with the idea of
the Debit card and Smart card.

NEFT was introduced (online

2005 transfer) RBI’s idea.