Banking in India

Banking in India is regulated by India’ Apex Bank - Reserve Bank of India. RBI is also Known as the Central Bank of India. Its Governor is Dr. D. Subbarao and has 4 deputy governors. RBI has 22 regional offices mostly in the state capitals. The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.

Financial Supervision

The Reserve Bank of India performs this function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India.


Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies.


Some of the initiatives taken by BFS include:

i.              restructuring of the system of bank inspections

ii.             introduction of off-site surveillance,

iii.            strengthening of the role of statutory auditors and

iv.            strengthening of the internal defences of supervised institutions.

The Audit Sub-committee of BFS has reviewed the current system of concurrent audit, norms of empanelment and appointment of statutory auditors, the quality and coverage of statutory audit reports, and the important issue of greater transparency and disclosure in the published accounts of supervised institutions.

Current Focus

•              supervision of financial institutions

•              consolidated accounting

•              legal issues in bank frauds

•              divergence in assessments of non-performing 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 and Banking sector

Acts governing specific functions

Public Debt Act, 1944/Government Securities Act (Proposed): Governs government debt market

Securities Contract (Regulation) Act, 1956: Regulates government securities market

Indian Coinage Act, 1906:Governs currency and coins

Foreign Exchange Regulation Act, 1973/Foreign Exchange Management Act, 1999: Governs trade and foreign exchange market

"Payment and Settlement Systems Act, 2007: Provides for regulation and supervision of payment systems in India"

Acts governing Banking Operations

Companies Act, 1956:Governs banks as companies

Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980: Relates to nationalisation of banks

Bankers' Books Evidence Act

Banking Secrecy Act

Negotiable Instruments Act, 1881

Acts governing Individual Institutions

State Bank of India Act, 1954

The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003

The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993

National Bank for Agriculture and Rural Development Act

National Housing Bank Act

Deposit Insurance and Credit Guarantee Corporation ActMain Functions of RBI

Monetary Authority: RBI

Roles of RBI-

Formulates, implements and monitors the monetary policy.

Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.

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 Management Act, 1999.

Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Issuer of currency:

Issues and exchanges or destroys currency and coins not fit for circulation.

Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.

Note: All the Notes except one rupee note have the signatures of RBI Governor. One rupee note bears the signatures of Finance Secretary (Sunil Mitra as on 31-12-2011) .

Developmental role

Performs a wide range of promotional functions to support national objectives.

Related 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.



Has 22 regional offices, most of them in state capitals.


Fully owned: National Housing Bank(NHB), Deposit Insurance and Credit Guarantee Corporation of India(DICGC), Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL)

 The Reserve Bank of India has recently divested its stake in State Bank of India and National Bank for Agriculture and Rural Development (NABARD) to the Government of India.