Meaning and Origin of the Reserve Bank of India

Every country with an organised banking system needs one institution standing above all the ordinary banks — an institution that issues currency, holds the government's account, keeps the whole banking system solvent, and steers the supply of money and credit in the economy. In India that institution is the Reserve Bank of India (RBI), the nation's central bank and the apex of the entire Indian banking and financial structure.

The RBI was set up under the Reserve Bank of India Act, 1934, and commenced operations on 1st April 1935, on the recommendation of the Hilton Young Commission. It began as a shareholders' bank (privately owned), with its central office originally at Calcutta, later shifted permanently to Mumbai in 1937. On 1st January 1949, shortly after Independence, the RBI was nationalised — its entire share capital was transferred to the Central Government — and it has since functioned wholly as a Government-owned institution, though it is a Statutory Company, created by its own special Act rather than registered under the Companies Act, exactly like the Life Insurance Corporation of India.

Unlike an ordinary commercial bank, the RBI does not deal directly with the general public — it does not accept deposits from, or lend money to, individual citizens. Its "customers" are the Government of India, the State Governments, and the commercial and cooperative banks themselves — which is why the RBI is often called the "banker's bank" and the "lender of last resort."

TN's Commerce syllabus covers RBI's organisation, objectives and functions in the same depth that CBSE/NCERT Business Studies and Economics courses give to the study of central banking in India — the RBI Act, 1934 and the institution's functions described below are the same regardless of which board's textbook a student uses.