The Reserve Bank of India (RBI) is the central bank of India, established as a statutory institution under the Reserve Bank of India Act, 1934. It commenced operations on April 1, 1935, following 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 secure monetary stability, taking over these functions from the Controller of Currency and the Imperial Bank of India. Initially a privately owned shareholders' bank, it was nationalized in 1949.
The RBI's mechanism is rooted in the RBI Act, 1934, which grants it the exclusive right to issue currency notes under Section 22. Its core functions, enumerated in Section 17, include acting as the banker to the government and commercial banks, managing foreign exchange reserves, and controlling the credit system. Furthermore, Section 42(1) mandates that every scheduled bank must maintain a minimum average daily balance with the RBI. The RBI connects to other key legislation, such as the Banking Regulation Act, 1949, and the Payment and Settlement Systems Act, 2007.
A significant recent change is the establishment of the Monetary Policy Committee (MPC) in 2016. This was done through an amendment to the RBI Act, 1934, which inserted Section 45ZB. The MPC, a six-member body, is now tasked with determining the policy interest rate (repo rate) to achieve the inflation target of 4% ± 2%, a function previously performed solely by the RBI Governor. While the MPC now sets the key rate, the RBI continues its role as the regulator of the banking system and the issuer of currency.