The Reserve Bank Of India was established on April 1 1935, according to the provision of RBI Act 1934.Initially the Central Office of the RBI was in Calcutta, which was later shifted to Mumbai in 1937.The RBI policies are formulated by the governor at the Central Office. The RBI was nationalized in 1949.

Preamble

The Preamble of RBI states:
"...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage."

Central Board
The RBI is monitored by a central board of directors. The board is appointed by the Government of India in accordance with the RBI act.

Local Boards

Local Boards are present in the four metros of Mumbai, Calcutta, Chennai and New Delhi.
Local Board consists of five members.
Local Board is appointed by the Central Government.
Local Board is for a period of four years.

Financial Supervision
The RBI accomplishes the role of financial supervision through the Board For Financial Supervision (BFS).The BFS was initiated in November 1994.

Functions Of BFS

Streamlining the system of bank inspections.
Induction of offsite surveillance.
Consolidating the role of statutory auditors and
Consolidating the internal defenses of supervised institutions.

Current Focus Of BFS

Supervise financial institutions.
Consolidate accounts.
Deal with legal issues in bank frauds.
Variance in assessment of nonperforming assets and
Supervisory rating model for banks.

Legal Framework

Umbrella Acts

Reserve Bank Of India Act 1934 governs the Reserve Bank functions.
Banking Regulation Act 1949 governs the financial sector.

Functions of RBI

Monetary Authority:
The RBI is responsible for implementing, formulating and monitoring the monetary policy of India.

Objective: Keeping this authority in mind the RBI is required to maintain price stability and ensure adequate flow of credit to productive sectors.

Regulator And Supervisor Of The Financial System:
The Supreme Financial Body sets down broad parameters of banking operations within which the country's banking and financial system operates.

Objective: This reasonably helps in maintaining public confidence in the system. It in turn protects depositors' interest and provides lucrative banking services to the public.

Manager of Exchange Control:
The RBI is responsible for managing the Foreign Exchange Management Act, 1999.

Objective: It is the nodal agency which facilitates external trade and payment and promotes orderly development and maintenance of foreign exchange market in India.

Issuer Of Currency:
It is the only supreme body which issues and exchanges or destroys currency and coins not fit for circulation.

Objective: This facilitates in giving the public adequate quantity of currency notes and coins and in good quality.

Developmental Role
The RBI since its inception performs a wide range of promotional functions to support national objectives and generate goodwill among the citizens of the country.

Related Functions

Banker to the Government: The RBI performs merchant banking function for the central and the state governments and also acts as their banker. The RBI often advises the Government of the current monetary condition in the state.

Banker to Banks: maintains banking accounts of all scheduled banks. The RBI looks after the functioning of the state banks and grants them license and even cancels the same on account of fraud practice.