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Unit 2: Reserve Bank of India

Independence is usually defined as the central bank’s operational and management independence Notes
from the government. On the other hand, an independent, privately owned “Central Bank” can,
and has been proven in the past to have done as such (the Great Depression), create a boom and
bust scenario for the profit of the owners and shareholders of the bank itself.
In addition, it is argued that an independent central bank can run a more credible monetary
policy, making market expectations more responsive to signals from the central bank.
An “independent central bank” is one which operates under rules designed to prevent political
interference.

Example: The Banco Central de Chile, the Reserve Bank of Australia, the Reserve Bank of
India, the European Central Bank, the Bank of Canada etc.

Departments of RBI

The Reserve Bank of India has sixteen departments. These are:

1. Issue Department: This department issues paper currency and therefore, it also makes
arrangement for the distribution of paper currency. It maintains regular accounts of the
notes printed at Nasik Press. It has branches at the Bangalore, Mumbai, Kolkata, Hyderabad,
Kanpur, Chennai, Nagpur, New Delhi and Patna.

2. Banking Department: This department performs two primary functions:
(i) Dealing with Government transactions and floating of loans on behalf of the Central
and State Governments and arranging remittances of government funds from one
place to another; and

(ii) The maintenance of cash reserves of scheduled banks, extending financial assistance
to them whenever required, and functioning as the clearinghouse for the scheduled
banks.
3. Banking Development: This department is concerned with the expansion of banking
facilities in the rural and semi-urban areas. It also imparts training to the scheduled banks
employees.

4. Banking Operation: This department undertakes:
(i) Periodical inspections of the scheduled banks

(ii) Analyses their balance sheets
(iii) Issues licenses for opening of new banks

(iv) Considers requests for opening new branches
(v) Examines the requests of scheduled banks for increasing the paid up capital

(vi) Examines the possibilities for the amalgamation of existing banks and tenders advised
to the scheduled banks in their day-to-day functioning.

Notes Department of RBI maintains regular accounts of the notes printed at Nasik Press.

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