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Structure & Monetary Policies Of The RBI

Policies of The RBI steer the economy of our country. India’s central banking institution is the Reserve Bank of India or the RBI. Among its various functions, the RBI also controls the monetary policy of the Indian currency. Learn more about the structure and the monetary Policies of The RBI in this article.

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Policies of The RBI

The RBI commenced its operations in the year 1935, on April 1st, under the Reserve Bank of India Act. After India’s independence, the RBI was nationalized on January 1st, 1949.  It also regulates the currency and credit systems in the country. The RBI has its headquarters in Mumbai.

Policies of The RBI

Structure of the RBI

The banker of banks, the RBI is governed by a Central Board of Directors which is appointed by the Government of India. The directors of the RBI are appointed for a term of four years. The Central Board comprises of Official Directors and Non-Official Directors. The Official Directors are the Governor and not more than four Deputy Governors.  Apart from the above designations, there are also four other Directors, each from four local boards. These directors of the local boards represent the four regions of the country- Mumbai, Chennai, Kolkata and New Delhi.

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The current RBI governor is Mr. Urijit Patel, who has taken over from Mr. Raghuram Rajan in the year 2016. He is the 24th Governor of the RBI. Prior to taking up this role, he served as the Deputy Governor for some time. Mr. Patel worked for the IMF and also went on deputation from the IMF to the RBI, where he had an advisory role. Later, he became a Consultant to the Ministry of Finance, Government of India. He also worked in several high-level committees, some of which include Task Force on Direct Taxes, Prime Minister’s Task Force on Infrastructure, Group of Ministers on Telecom Matters, Committee on Civil Aviation Reforms, Expert Group on State Electricity Boards, High-Level Expert Group on Civil & Defense Services Pension System etc.

Policies of The RBI

Monetary Policies

The Central Bank, the RBI formulates, implements and monitors the monetary policy.  In fact, the monetary policy and the fiscal policy are the two tools of macroeconomic policy. The monetary policy mainly ensures that there is price stability coupled with economic growth. The key areas that these policy targets are the interest rates, bank credits, and money supply.

Some of the objectives of the monetary policy include maintenance of price stability, ensuring adequate flow of credit to the productive sectors, expansion of credit facility, equitable distribution of credit, promotion of fixed deposits etc. The RBI also uses some tools to regulate the monetary policy. These include Open Market operations, Bank Rate, Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Repo rate, Reverse Repo rate etc. There are also some Qualitative instruments that the RBI uses which impact the money supply indirectly.

Policies of The RBI

A few key terms explained

  • Bank Rate – It is the interest rate at which RBI gives loans to the banks.
  • Cash Reserve Ratio – It refers to the minimum funds that banks have to keep with the RBI.
  • Statutory Liquidity Ratio- It is the fraction of the net time and demand liabilities of the banks in the form of liquid assets that banks have to maintain.
  • Repo rate – It is the interest rate at which RBI gives loans to commercial banks.
  • Reverse Repo Rate – The interest rate at which RBI borrows from commercial banks is called the reverse repo rate.

The RBI, its structure, functions, and monetary policy are some important topics from which you can expect questions in the different banking competitive exams.

Here are a few sample questions.

Solved Questions For You

  1. What is the current repo rate?
  1. 6%
  2. 25%
  3. 75%
  4. 8%

Ans. Option A

  1. The Reserve Bank of India was nationalized in which year?
  1. 1935
  2. 1950
  3. 1947
  4. 1949

Ans. Option D

  1. The first headquarters of the RBI was located in which city?
  1. Mumbai
  2. Kolkata
  3. Chennai
  4. New Delhi

Ans. Option B

  1. The monetary policy is a regulatory policy that has been formulated to control the supply of money in the economy. Which bank makes these policies?
  1. SBI
  2. RBI
  3. IBA
  4. None of these

Ans. Option B

  1. The main objective of the monetary policy of India is:
  1. Overall Monetary Stability
  2. Reduce Poverty and Achieve Stability
  3. Growth with Stability
  4. None of These

Ans. Option C

 Practice Questions

  1. Who was the Governor of RBI, when demonetization occurred in India, in 2016?

Ans. Mr. Urijit Patel

  1. The banking Ombudsman scheme was introduced by whom?

Ans. The Reserve Bank of India introduced the Banking Ombudsman scheme under Section 35 A of the Banking Regulation Act, 1949 in the year 1995.

  1. What does the RBI buy, if it wants to increase the credit flow in the system?

Ans.  Government Securities.

  1. The RBI has asked banks to upgrade the ATMs to prevent what?

Ans. Banks have been asked to upgrade the ATMs in order to prevent skimming and cloning of debit cards.

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