The Reserve Bank of India (RBI) is the central bank of India and the primary regulatory institution for the country's banking system and currency. It is an institution established under the Reserve Bank of India Act, 1934. The RBI was established on April 1, 1935, based on the recommendations of the 1926 Royal Commission on Indian Currency and Finance, also known as the Hilton Young Commission. The central purpose was to regulate the issue of banknotes and secure monetary stability in India. Initially a shareholder's bank, it was nationalized on January 1, 1949.
The RBI's mechanism is governed by the Reserve Bank of India Act, 1934, which grants it the exclusive right to issue currency notes under Section 22. It acts as the banker to the central and state governments and manages their public debt. A key provision, Section 42(1), mandates that every scheduled bank must maintain an average daily balance with the RBI as cash reserves. The RBI's functions are closely connected to the Banking Regulation Act, 1949, and it established the National Payments Corporation of India (NPCI).
A major recent change occurred with the Finance Act, 2016, which amended the RBI Act to insert Section 45ZB, providing a statutory basis for the constitution of the Monetary Policy Committee (MPC) for inflation targeting. This amendment also removed the statutory floor and ceiling for the Cash Reserve Ratio (CRR) in Section 42(1), granting the RBI greater flexibility in monetary control. Furthermore, the Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026, introduced a shift from loan-level to borrower-level classification for Non-Performing Assets (NPAs).