President of India, Smt Droupadi Murmu, attended the closing ceremony of RBI’s 90th year commemoration in Mumbai on April 1, 2025. She emphasized RBI’s crucial role in India’s economic growth since its inception.
Historical Background of RBI:
- Royal Commission on Indian Currency (Hilton Young Commission) recommends the establishment of a central bank to be called the ‘Reserve Bank of India’.
- Established in 1935, RBI announced its first monetary policy by fixing the bank rate and Cash Reserve Ratio (CRR).
- Influences:
- Bank Rate: Concept borrowed from the Bank of England (BoE), which was founded in 1694 to finance British wartime expenses.
- CRR: Modeled after the Federal Reserve Act of the USA, enabling RBI to regulate liquidity and prevent bank failures.
- Predecessors of RBI:
- Three Presidency Banks (Bengal, Bombay, and Madras) were merged in 1921 to form the Imperial Bank of India.
- RBI was established through the RBI Act of 1934 and took over monetary policy functions.
- In 1955, the Reserve Bank of India acquired the controlling interests of the Imperial Bank of India and SBI was created by an act of Parliament to succeed the Imperial Bank of India.
Key Monetary Policy Tools of RBI:
- Bank Rate: The standard rate at which RBI buys or re-discounts bills of exchange and other commercial papers.
- Cash Reserve Ratio (CRR): A reserve requirement that helps control liquidity and ensure banking stability.
- Open Market Operations (OMO): RBI buys and sells government securities to manage money supply in the economy.
(Source: Financial Express)
