The Reserve Bank of India (RBI) is the central bank of India, established as an institution under the Reserve Bank of India Act, 1934. It was founded 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 RBI was created to regulate the issue of banknotes and keep reserves to secure monetary stability in India, a function outlined in the Preamble to the RBI Act, 1934. Initially a privately owned entity, it was nationalized on January 1, 1949, under the Reserve Bank of India (Transfer to Public Ownership) Act, 1948.
The RBI operates as the sole issuer of currency notes, a right granted under Section 22 of the RBI Act, 1934. It functions as the banker to the government and the lender of last resort for commercial banks. The RBI regulates the banking system using powers granted by the Banking Regulation Act, 1949, and manages foreign exchange under the Foreign Exchange Management Act, 1999 (FEMA). A major recent change occurred in May 2016, when an amendment to the RBI Act, 1934, established the six-member Monetary Policy Committee (MPC) under Section 45ZB. This amendment provided the statutory basis for the flexible inflation targeting framework, formalizing the objective to maintain price stability while keeping in mind the objective of growth, which is an addition to the original Preamble. The core function of securing monetary stability, however, remains unchanged.