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Unit 3: Indian Banking System

1. One Governor and four Deputy Governors appointed by the Government of India for a Notes
period of five years. Their salary, etc., are decided by the Central Board of Directors in
consultation with the Government of India.
2. Four directors nominated from the local boards, located at Bombay (Mumbai), Calcutta
(Kolkata), Madras (Chennai) and New Delhi by the Government of India. Their tenure is
also five years.
3. Ten other directors nominated by the Government of India whose term is four years.
4. An official of the Government of India to attend the meetings of the Central Board. His
tenure is not fixed and he does not enjoy the right to vote in the meetings.
5. The Central Board is required, under the Act, to meet at least six times a year. The Governor
of the Reserve Bank can call the meeting of the Central Board, whenever he thinks necessary.
Each local board has at least four members, appointed by the Government of India for a
period of four years and representing all interests. The local boards render advice to the
Central Board and also perform the various jobs assigned to them by the Central Board.

3.4.2 Functions of RBI

The Central Bank is the apex monetary institution in the money market. It acts as the monetary
authority of the country and serves as the government bank as well as the bankers’ bank. It
undertakes the major financial operations of the government. It influences the behaviour of
financial institutions to ensure that they support the economic policy of government.
The main function of the Central Bank is to regulate the monetary mechanism comprising of the
currency, banking and credit systems. For this purpose, the bank is given wide powers. Another
important function of the central bank is to conduct the banking and financial operations of the
government. Besides, it discharges certain other functions. These functions are performed with
the service motive and not for making profits.

Figure 3.2: Role and Functions of Central Bank

1. Traditional Central Banking 2. Supervisory Functions
Functions (Monetary Functions)
a. Bank of Issue – The Minimum
Reserve System
b. Banker to Government
c. Banker's Bank and Lender of
the Last Resort
d. Controller of Credit
e. Custodian of Foreign Reserves

Nature and Functions
of Central Bank

4. Miscellaneous Functions
a. Interest Rate Intervention
b. Monetary Policy Instruments 3. Promotional Functions
Source: Gulati, Neelam C, “Principles of Banking Management”, (2010), (P-61), Excel Books Pvt. Ltd.

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