Question

Consider the following statements about the Reserve Bank of India(R.B.I).

a) It was set up on the basis of recommendations of the Hilton Young Commission.

b) R.B.I commenced its operations on 1st April 1935 as a government owned bank.

c) It was Nationalised on 1st April 1949.

Which of the above statement/s is/ are incorrect?

1. a and b only
2. b only
3. b and c only
4. c only

Answer 1

Correct Answer - Option 3 : b and c only

The incorrect statement is b and c only.

• The Reserve Bank of India was established on April 1, 1935, in accordance with the provisions of the Reserve Bank of India Act, 1934. Hence statement b incorrect.
• The bank was set up based on the recommendations of the 1926 Royal Commission on Indian Currency and Finance, also known as the Hilton–Young Commission.
• The Central Office of the Reserve Bank was initially established in Kolkata but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated.
• Though originally privately owned, since nationalisation on 1 January 1949, the Reserve Bank is fully owned by the Government of India. Hence statement c incorrect.

Main Functions of RBI:

• Monetary Authority: 
  • Formulates, implements and monitors the monetary policy.
  • Objective: maintaining price stability while keeping in mind the objective of growth.
• Regulator and supervisor of the financial system:
  • Prescribes broad parameters of banking operations within which the country's banking and financial system functions.
  • Objective: maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public.
• Manager of Foreign Exchange:
  • Manages the Foreign Exchange according to the Foreign Exchange Management Act, 1999.
  • Objective: to facilitate external trade and payment and promote orderly development and maintenance of the foreign exchange market in India.
• The issuer of the currency :
  • Issues and exchanges currency and destroys currency and coins that are not fit for circulation.
  • Objective: to give the public an adequate quantity of supplies of currency notes and coins and in good quality.
• Developmental role :
  • Performs a wide range of Developmental functions to support national objectives.
• Regulator and Supervisor of Payment and Settlement Systems :
  • Introduces and upgrades safe and efficient modes of payment systems in the country to meet the requirements of the public at large.
  • Objective: maintain public confidence in the payment and settlement system.
• Other Functions :
  • Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker
  • Banker to banks: maintains banking accounts of all scheduled banks.