The Reserve Bank of India (RBI) is an institution, specifically the central bank and apex financial body of India, fully owned by the Government of India since its nationalization in 1949. It was established on April 1, 1935, under the Reserve Bank of India Act, 1934, following the recommendations of the Hilton Young Commission. The RBI was created to solve the problem of regulating the issue of banknotes, maintaining reserves to secure monetary stability, and operating the country's credit and currency system.
The statutory basis for its functioning is the Reserve Bank of India Act, 1934. A core mechanism is the exclusive right to issue currency notes, granted by Section 22 of the Act. The RBI acts as the banker to the Central and State Governments and is the chief banker to all scheduled commercial banks. Section 42(1) mandates that every scheduled bank must maintain an average daily balance with the RBI.
A major recent change occurred in 2016 with an amendment to the RBI Act, which established the six-member Monetary Policy Committee (MPC). The MPC is now responsible for setting the policy interest rate to achieve the primary objective of maintaining price stability while keeping in mind the objective of growth. The RBI's regulatory power is also connected to the Banking Regulation Act, 1949, and it oversees the country's payment and settlement systems.