The Reserve Bank of India Act, 1934 is the principal legislative Act that established the Reserve Bank of India (RBI) as India's central bank. The Act was enacted on March 6, 1934, and came into force on April 1, 1935, following the recommendations of the Hilton Young Commission (Royal Commission on Indian Currency and Finance) in 1926. The problem it solved was the absence of a central monetary authority to regulate the issuance of banknotes and secure monetary stability in India during the colonial period.
The Act provides the legal basis for the RBI's powers, functions, and responsibilities. Section 3 established the RBI as a body corporate with perpetual succession. A key mechanism is the RBI's monopoly of note issue under Section 22, which grants it the sole right to issue currency notes in India. The Act also designates the RBI as the banker, agent, and debt manager to the central and state governments under Sections 20 and 21. Furthermore, Section 42(1) mandates that every scheduled bank must maintain an average daily balance with the RBI as cash reserves.
The Act connects to the Banking Regulation Act, 1949, which governs the functioning of commercial banks, and the Reserve Bank (Transfer to Public Ownership) Act, 1948, which nationalized the RBI. A significant recent change was the Finance Act, 2016, which amended the Act to insert Chapter III-F and new sections like 45ZB, establishing the six-member Monetary Policy Committee (MPC). The MPC is tasked with setting the policy rate to meet the inflation target, modernizing the monetary policy framework. The Banking Laws (Amendment) Act, 2025 further amended the Act to strengthen governance and enhance depositor protection.