Practice Questions

RBI uses tools like repo rate, reverse repo rate, cash reserve ratio (CRR), and open market operations to regulate money supply and credit.

The goal is to maintain price stability, promote economic growth, and prevent the economy from overheating (inflation) or slowing down excessively (deflation).

This function focuses on developing the financial system and promoting economic growth.

Activities like encouraging savings, financial literacy, and banking habits among the public are part of RBI’s developmental role.

Under this function, RBI supports agriculture, small-scale industries, and priority sectors.

It also promotes financial inclusion, literacy, and modernization of banking, contributing to overall economic development.

RBI regulates and supervises banks to ensure they operate safely and follow banking norms.

Licensing is the first step in this regulatory role, allowing RBI to control which banks can operate in India.

Under this function, RBI licenses banks, monitors their operations, and ensures they follow banking norms.

It aims to maintain stability in the banking system and protect depositors’ interests.

RBI is the sole authority to issue currency notes in India (except the ₹1 note issued by the Government of India).

This function is part of its role in controlling money supply and maintaining economic stability.

Under its monetary function, RBI controls liquidity, credit, and interest rates in the economy.

It uses tools like repo rate, reverse repo rate, cash reserve ratio (CRR), and open market operations to regulate money supply and maintain economic stability.

Functions of RBI Classified into 3 - 
1.Monetary Functions – Controlling money supply, issuing currency, and managing public debt.

Regulatory/Supervisory Functions – Regulating and supervising banks and financial institutions.

Promotional and Developmental Functions – Supporting economic growth, financial inclusion, and development of priority sectors.

The functions of RBI is classified  into 3 
 1.Monetary Functions – Controlling money supply, issuing currency, and managing public debt.

2.Regulatory/Supervisory Functions – Regulating and supervising banks and financial institutions.

3.Promotional and Developmental Functions – Supporting economic growth, financial inclusion, and development of priority sectors.

The RBI Governor holds multiple key roles:

Chairman of the Central Board – leads the Board in policy decisions.

Chief Executive – oversees the day-to-day administration of the RBI.

Managing Director – ensures implementation of policies and operational control.

This combination gives the Governor ultimate authority in both policy-making and administration of the RBI.

The Governor is not elected by banks, does not control the Finance Ministry, and does not appoint the President.

Because the Governor controls the Finance Ministry

Because the Governor is simultaneously Chairman, Chief Executive, and Managing Director

Because the Governor appoints the President

The RBI Governor acts as the Chairman of the Central Board of Directors.

As Chairman, the Governor presides over all Board meetings and is responsible for guiding discussions and implementing decisions.

Deputy Governors assist the Governor, but they do not preside over meetings.

The Finance Minister or BFS Chairman do not chair RBI Board meetings.

The Governor of the RBI holds multiple key roles:

Chairman of the Central Board – heads the RBI’s governing body.

Chief Executive – responsible for overall management of the RBI.

Managing Director – oversees operations and policy implementation.

The Governor is not the Finance Secretary, Deputy Governor, or Minister of Finance—those are separate positions in the government.

Chairman of the Central Board, Chief Executive, and Managing Director

Official Directors are members of the RBI Central Board by virtue of the positions they hold (ex-officio).

They include:

Governor of RBI

Deputy Governors

Certain RBI officers nominated by the Central Board

They do not include representatives from commercial banks, shareholders, or regional offices—those fall under Unofficial Directors.

They include members nominated from commercial banks

They are ex-officio members such as Finance Secretary and RBI Deputy Governors

Unofficial Directors of the RBI include representatives from local boards (there are 4 local boards for different regions).

These directors are nominated by the Government of India, not directly by the RBI Governor or Parliament.

Their role is to bring regional and sectoral perspectives to the Central Board’s decisions.

In the RBI Central Board, members are divided into Official and Unofficial Directors:

Official Directors: Governor, Deputy Governors, and RBI officers.

Unofficial Directors: Individuals nominated by the Government of India or local boards who do not hold any official government post. They represent commerce, industry, agriculture, and regional interests.

So, “Unofficial Directors” essentially means non-governmental representatives on the Board.

Directors not holding any official government post

In the RBI Central Board, members are categorized as Official and Unofficial Directors.

Official Directors include the Governor, Deputy Governors, and other RBI officials.

Unofficial Directors are:

Directors nominated by the Government of India to represent commerce, industry, agriculture, and other sectors.

Two government officials nominated by the Government.

Representatives from local boards (which exist for four regions to advise on regional matters).

So, Unofficial Directors represent government and local/sectoral interests, not the RBI’s executive management.

Directors nominated by the Government of India ,two Govt officials nominated by the Government and local office representatives

The Central Board of the RBI consists of the official directors (like the Governor, Deputy Governors) and nominated directors appointed by the Government of India.

The nominated directors hold office for a term of 4 years.

This term ensures continuity while allowing periodic renewal of membership for fresh perspectives

The Central Board of the Reserve Bank of India (RBI) is the apex body that supervises the RBI and provides overall policy direction.

It does not get involved in daily banking operations (that’s the role of RBI’s executive staff).

Printing currency notes is done by the RBI through its Note Printing Presses, but this is not the primary function of the Board.

Controlling state cooperative banks falls under regulatory departments, not directly under the Central Board.

So, the Board is mainly about governance and strategic oversight.

Supervise RBI and provide general direction

The Governor of the RBI must convene meetings of the Central Board at least six times in each year (i.e., not less than six meetings annually).
Additionally, the Act specifies that there must be at least one meeting in each quarter.

The nominated (non-official) directors on the RBI Central Board are appointed by the Government of India for a term of 4 years. This includes representatives from scheduled banks, cooperative banks, and other financial institutions. They may also be eligible for reappointment after the term ends.

The Central Board of Directors of the Reserve Bank of India (RBI) is the apex decision-making body of the RBI. It consists of:

Official Directors – Appointed by the Government of India, including the Governor and Deputy Governors of RBI.

Non-official Directors – Representing scheduled commercial banks, cooperative banks, financial institutions, and other sectors.

Government Nominees – Representatives from the Government of India.

So, the board includes representatives of both the government and scheduled banks, not just one or the other.

Deputy Directors are part of the Central Board of Directors of the RBI.

They represent regional interests and provide inputs from the local boards of RBI.

They are not appointed solely by the RBI Governor 
, nor nominated only by the Finance Ministry , nor elected by shareholders .

Their inclusion ensures regional representation and expertise in the board’s decision-making.

Deputy Directors are part of the Central Board of Directors of the RBI.

They represent regional interests and provide inputs from the local boards of RBI.

They are not appointed solely by the RBI Governor (A), nor nominated only by the Finance Ministry (C), nor elected by shareholders (D).

Their inclusion ensures regional representation and expertise in the board’s decision-making.

The Central Board of Directors is the apex authority of the RBI.

It formulates and monitors the policies of the Reserve Bank, ensuring effective governance and financial stability.

It does not merely approve government policies  or directly supervise commercial banks 

It also does not appoint State Bank governors ; that is the prerogative of the Government of India.

This distinction is important for understanding RBI’s governance structure.

It only approves policies of the Government

The RBI Act, 1934 provided the legal framework for the establishment, governance, and functions of the Reserve Bank of India.

Under this act, the Central Board of Directors was created as the apex authority to oversee the bank’s management and policy decisions.

Other acts like the Banking Regulation Act, 1949 and Companies Act, 1956 deal with different aspects of banking and corporate governance, not the constitution of the RBI.

RBI Governor serves as the chief executive of the bank and chairs the Central Board meetings.

While the Central Board is the apex authority for policy and governance, the Governor leads and coordinates its functioning.

Deputy Governors and other directors assist the Governor, but the Governor is the head of the Board.

The Central Board of Directors is the top decision-making body of the RBI.

It oversees policy formulation, management, and administration of the bank.

The RBI Governor acts as the chief executive, but the Central Board provides overall supervision and guidance.

Other bodies like the Monetary Policy Committee or Board of Supervision handle specific functions, but the Central Board is the apex authority.

The Central Board of Directors consists of both official and non-official Directors.

Among the non-official Directors, 10 are nominated by the Government of India to represent various sectors like agriculture, industry, commerce, and cooperative banking.

This ensures that the government has a significant role in guiding RBI policy while maintaining a balance with banking experts.

The RBI originally had four local boards in:

Mumbai (then Bombay)

Kolkata (then Calcutta)

Madras (now Chennai)

Delhi

Each local board nominates one Director to the Central Board, representing regional banking and economic interests.

The RBI has four local boards located in Mumbai, Kolkata, Chennai, and Kanpur.

Each local board nominates one Director to the Central Board of Directors.

These Directors represent regional interests and provide inputs on local banking and economic issues.

The Central Board of Directors is the top decision-making body of the RBI.

It consists of:

Governor, Deputy Directors, Directors from local offices, Directors and Government officials

Deputy Directors, Directors from local offices, Directors and Government officials

The term of office of the RBI Governor is 3 years, though it can be extended by 2 years by  Government of India. Maximum period 5 Years.

The RBI Governor is appointed by the Government of India.

However, the formal appointment letter is issued by the President, giving it official constitutional validity.

This ensures that the position has both executive approval and formal authority.

The RBI Governor is the highest executive authority of the central bank and is responsible for:

Formulating and implementing monetary policy

Regulating currency and credit

Supervising banks and financial institutions

Deputy Governors assist the Governor, but the Governor alone is the chief executive.

The RBI Governor is the chief executive of the central bank and is appointed by the Central Government.

The initial head office of the Reserve Bank of India (RBI) was located in Kolkata when it was established in 1935.Then shifted to Mumbai in 1937.

When the Reserve Bank of India was established in 1935, its emblem was modeled on the historic seal and mohur of the East India Company, which also featured a tiger.

This choice symbolized continuity in India’s banking and monetary system while reflecting authority and trust.

East India Company’s original seal and mohur

The RBI emblem consists of a tiger and a palm tree. ✅

Tiger: Symbolizes strength and authority.

Palm tree: Represents growth and prosperity.

So it is not a panther, and the correct pairing is Tiger and Palm Tree.

Initially (1935), RBI was set up as a shareholders’ bank.
The Reserve Bank of India (RBI) was nationalized on January 1, 1949, when the ownership of the RBI was fully transferred to the Government of India.
After independence, the RBI was nationalized to serve as a central bank fully owned by the government, giving it complete control over monetary policy and currency issuance.

The authorized capital is the maximum amount of capital that a company or bank is allowed to raise through the issuance of shares.
RBI was initially set up as a shareholders’ bank, so it had an authorized capital of ₹5 crore, divided into shares held by private shareholders.
(5 lakh share @rs 100 each)

The Reserve Bank of India (RBI) was initially established as a shareholders’ bank in 1935, with a paid-up capital contributed by private shareholders. It was not nationalized at the beginning; nationalization happened later in 1949.

The Reserve Bank of India (RBI) was established to serve as the central bank of India, following the recommendations of the Hilton Young Commission. To create the RBI, the RBI Bill had to be passed.

The RBI Bill was introduced and approved on March 6, 1934.

After the bill was passed, the Reserve Bank of India officially started functioning on April 1, 1935.

So, the distinction is:

Approval of the RBI Bill: March 6, 1934 ✅

RBI began operations: April 1, 1935

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