RBI Celebrates 90 Years of Service on Foundation Day 2024

The Reserve Bank of India (RBI), the nation’s central banking institution, is entering its 90th year on April 1st, 2024. To mark this significant occasion, Prime Minister Narendra Modi is attending the event at Mumbai’s National Centre for the Performing Arts.

Establishment and History

The RBI was established on April 1, 1934, following recommendations from the Royal Commission on Indian Currency and Finance to maintain the country’s monetary stability. Its operations commenced on April 1, 1935, with Sir Osborne Smith as the first Governor.

Over the years, the RBI has seen 26 Governors, with the current Governor being Shaktikanta Das, who assumed office in October 2021. The Central Office of the RBI was initially in Kolkata but was shifted to Mumbai in 1937.

Expanding Roles and Responsibilities

Initially responsible for currency issuance, banking services, and agricultural credit, the RBI’s role has expanded over the decades to include:

• Monetary management
• Regulation and supervision of the financial system
• Management of foreign exchange
• Regulation and supervision of payment and settlement systems
• Developmental roles

Significant Achievements

Balance Sheet and Liquidity Support

The RBI’s balance sheet currently stands at a staggering Rs 63 lakh crore as of March 31, 2023, larger than the annual budget of the government. This strong balance sheet enabled the RBI to provide liquidity support of close to 9% of GDP (US$ 227 billion) post-COVID-19.

Foreign Exchange Reserves

India’s foreign exchange reserves currently stand at a substantial USD 642 billion, the fourth-highest in the world. These reserves play a crucial role in maintaining the stability of the rupee’s value and have helped India weather global crises, such as the 1997 East Asian currency crisis and the 2008 financial crisis.

Inflation Management

The RBI’s role in inflation management or price stability has evolved over the years. A flexible inflation targeting framework was established in 2016, with a six-member Monetary Policy Committee (MPC) responsible for setting interest rates to maintain inflation within a target range of 2-6%, with 4% being the target.

Financial Sector Regulation

The RBI has implemented initiatives to reduce non-performing assets (NPAs) in banks’ books and maintain a comfortable capital adequacy ratio of 15-16%. It has also served as a lender of last resort, rescuing failing banks like Yes Bank and Lakshmi Vilas Bank.

Promoting Digital Payments

In the last decade, the RBI has played a crucial role in promoting digital payments. The Unified Payments Interface (UPI), an instant account-to-account transfer system, currently handles a staggering 12 billion transactions per month, with a total value reaching Rs 18.23 lakh crore in December 2022 alone.

Future Outlook

Over the next five years, UPI is poised to further erode the shares of NEFT and paper-based cheque transactions. Within the next 2-3 years, India’s UPI transaction volume is expected to surpass the combined transaction volume of global payment networks like Visa and Mastercard.

As the RBI celebrates its 90th anniversary, it continues to play a vital role in maintaining the country’s economic stability, regulating the financial sector, and promoting digital innovations in the payments ecosystem.

Important takeaways for all competitive exams

• Chief of the Reserve Bank of India, Shaktikanta Das;
• RBI Founded: 1 April 1935, Kolkata;
• RBI Headquarters: Mumbai, Maharashtra, India.