Law of Reserve Banking

Creation of the  Reserve Bank of India and Reserve Banking

A bank to be called the Reserve Bank of India shall be constituted for the purposes of taking over the management of the currency from the Central Government and of carrying on the business of banking in accordance with the provisions of this Act.The capital of the Bank shall be five crores of rupees. The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest. Subject to any such directions, the general superintendence and direction of the affairs and business of the Bank shall be entrusted to a Central Board of Directors which may exercise all powers and do all acts and things which may be exercised or done by the Bank(S-7). Governor and Deputy Governors to be appointed for  five years by the Central Government.

The Bank shall undertake to accept monies for account of  the Central Government and to make payments up to the amount standing to the credit of , and to carry out its exchange, remittance and other banking operations, including the management of the public debt of the Union. The Central Government shall entrust the Bank, on such conditions as may be agreed upon, with the management of the public debt and with the issue of any new loans.

If the Bank fails to carry out any of the obligations imposed on it the Central Government may, declare the Central Board to be superseded, and thereafter the general superintendence and direction of the affairs of the Bank shall be entrusted to such agency as the Central Government may determine, and such agency may exercise the powers and do all acts and things which may be exercised or done by the Central Board under RBI Act.

The aggregate value of the assets of RBI gold coin, gold bullion and foreign securities ( any drawing rights representing a liability of the IMF) held as assets and the aggregate value of the gold coin and gold bullion so held shall not at any time be less than two hundred crores of rupees and one hundred and fifteen crores of rupees, respectively.

The Bank shall issue rupee coin on demand in exchange for bank notes and currency notes of the Government of India, and shall issue currency notes or bank notes on demand in exchange for coin which is legal tender under the Coinage Act, 2011]

Purpose of having a Reserve Bank

1. Whereas it is expedient to constitute a Reserve Bank for India to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in British India and generally to operate the currency and credit system of the country to its advantage;
2. AND WHEREAS it is essential to have a modern monetary policy framework to meet the challenge of an increasingly complex economy;
3. AND WHEREAS the primary objective of the monetary policy is to maintain price stability while keeping in mind the objective of growth;
4. AND WHEREAS the monetary policy framework in India shall be operated
   by the Reserve Bank of India;

The RBI act as agent for the Central Government for transacting and dealing with following kinds of business, namely –

(a) the purchase and sale of gold or silver or foreign exchange; the purchase and sale of gold or silver coins and gold and silver bullion and foreign exchange and the opening of a gold account with the principal currency authority of any foreign country or the Bank for International Settlements or any international or regional bank or financial institution formed by such principal currency authority or authorities or by the Government of any foreign country;
(b) the purchase, sale, transfer and custody of bills of exchange, securities or
shares in any company;
(c) the collection of the proceeds, whether principal, interest or dividends, of
any securities or shares and dealing in repo or reverse repo.
(d) the remittance of such proceeds, at the risk of the principal, by bills of
exchange payable either in India or elsewhere;
(e) the management of public debt;
(f) the issue and management of  bonds and debentures;

Right to issue bank notes

The Bank shall have the sole right to issue bank notes( legal tender) in India, and may, for a period which shall be fixed by the Central Government on the recommendation of the Central Board, issue currency notes of the Government of India supplied to it by the Central Government, and the provisions of this Act applicable to bank notes shall, unless a contrary intention appears, apply to all currency notes of the Government of India issued either by the Central Government or by the Bank in like manner as if such currency notes were bank notes, and references in this Act to bank notes shall be construed accordingly.  The amount expressed on bank note is guaranteed by the Central Government.

Main Statutes

1. Reserve Bank of India Act, 1934
2. Indian Coinage Act, 2011 : Governs currency and coins
3. Public Debt Act, 1944
4. Banking Secrecy Act

Minor  Statutes

1. The legal tender(inscribed notes) Act 1964
2. Government Securities Act, 2006
3. Government Securities Regulations, 2007
4. Banking Regulation Act, 1949
5. Foreign Exchange Management Act, 1999
6. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Chapter II)
7. Credit Information Companies(Regulation) Act, 2005
8. Payment and Settlement Systems Act, 2007
9. Payment and Settlement Systems Regulations, 2008 and Amended up to 2011 and BPSS Regulations, 2008
10. The Payment and Settlement Systems (Amendment) Act, 2015 – No. 18 of 2015
    Factoring Regulation Act, 2011
11. Securities Contract (Regulation) Act, 1956
12. Deposit Insurance and Credit Guarantee Corporation Act, 1961
13. The Information Technology Act, 2000 (21 of 2000)

Repealed Acts

(a) the Metal Tokens Act, 1889;
(b) the Coinage Act, 1906;
(c) the Bronze Coin (Legal Tender) Act, 1918;
(d) the Currency Ordinance, 1940;
(e) the Small Coins (Offences) Act, 1971.

The Indian Securities Act, 1920

Others

1. International Development Association (Status, Immunities and Privileges) Act, 1960
2. International Finance Corporation (Status, Immunities and Privileges)
   Act, 1958
3. International Monetary Fund and Bank Act, 1945