Reserve Bank of India (RBI)

The Reserve Bank of India (RBI) is India’s central bank and monetary authority, established on 1 April 1935 under the Reserve Bank of India Act, 1934, with its central office in Mumbai. The institution was incorporated as a private joint-stock company but was nationalised on 1 January 1949 under the Reserve Bank of India (Transfer to Public Ownership) Act, 1948. Its central office, where the Governor’s office and the principal executive departments are situated, is in Mumbai, and the institution maintains a network of regional offices, sub-offices, and currency chests across the country. As of June 2026 its Governor is Sanjay Malhotra, who took charge on 11 December 2024.

The RBI performs the classic functions of a central bank: it issues currency (banknotes), acts as the government’s banker, acts as banker to commercial banks (including serving as lender of last resort), manages foreign exchange reserves, and regulates the banking system. In addition, it administers the Foreign Exchange Management Act, 1999 (FEMA), regulates payment systems under the Payment and Settlement Systems Act, 2007, and, since 2016, operates a formal inflation targeting framework through a statutory Monetary Policy Committee (MPC) with a mandate to maintain CPI (consumer price index) inflation at 4 per cent within a tolerance band of plus or minus 2 percentage points.

The RBI coexists with SEBI as the other major financial sector regulator in India, with SEBI governing capital markets and the RBI governing banks, non-banking financial companies, co-operative banks, and the payments infrastructure. The two institutions coordinate through a Joint Coordination Committee, and their respective mandates are delineated by the RBI Act, the Banking Regulation Act, 1949, the SEBI Act, 1992, and various subordinate instruments.

The following facts about the RBI, drawn from the RBI Act, 1934 and the RBI’s official record, are the most frequently queried.

Historical background

The Hilton-Young Commission and origins

The idea of a separate central bank for India was proposed as early as the 1860s but was repeatedly rejected by the colonial administration on the grounds that the functions of currency issuance and public debt management were adequately handled by the Imperial Bank of India (a state-promoted commercial bank that evolved from the merger of the three Presidency Banks in 1921) and the Finance Department of the Government of India.

The decisive impetus came from the Hilton-Young Commission (Royal Commission on Indian Currency and Finance, 1926), which recommended the establishment of a central bank to manage monetary policy independently of the government and separately from the existing commercial banking activity of the Imperial Bank. The Commission proposed that the new bank should be a private joint-stock company with limited government ownership, so as to insulate it from political pressure. After several years of legislative delay – during which the Great Depression of 1929-1933 intensified the need for a lender of last resort – the Reserve Bank of India Act was passed in 1934 and the bank commenced operations on 1 April 1935.

Early operations and the colonial era

The RBI opened for business in Kolkata (then Calcutta) with its first Governor, Sir Osborne Smith, an Australian-born banker. The initial paid-up capital was Rs 5 crore, divided into shares held predominantly by the public. The bank’s early activities focused on currency management, management of the public debt of the Government of India and the provincial governments, and the administration of exchange control regulations that became increasingly important during and after the Second World War.

The RBI moved its headquarters from Kolkata to Mumbai in 1937, reflecting the growing commercial and financial importance of Bombay. During the final years of colonial rule, the RBI managed the transition from the sterling-exchange standard to an independent monetary system and began developing the institutional infrastructure that would serve an independent India.

Nationalisation and the early post-independence decades

Nationalisation of the RBI on 1 January 1949 was followed by a broad programme of using the central bank to support planned economic development. During the 1950s and 1960s, the RBI administered a directed credit regime: banks were required through statutory regulations to deploy minimum proportions of their credit portfolios to priority sectors – agriculture, small industry, exports – at administered interest rates. The RBI also administered interest rate ceilings on deposits and lending, making the banking system an instrument of the government’s development policy rather than a purely market-driven intermediary.

The nationalisation of fourteen major commercial banks in 1969 under Prime Minister Indira Gandhi – justified on the grounds of social control of finance and priority sector deployment – significantly expanded the scope of RBI’s supervisory responsibility. Six additional banks were nationalised in 1980.

Demonetisations

1978 demonetisation: In January 1978, the government of Prime Minister Morarji Desai withdrew Rs 1,000, Rs 5,000, and Rs 10,000 notes from circulation to counter black money and counterfeiting. These denominations represented a small fraction of the total currency in circulation and the exercise’s economic impact was limited.

2016 demonetisation: On 8 November 2016, Prime Minister Narendra Modi announced, in a nationally televised address, the withdrawal of all Rs 500 and Rs 1,000 notes from legal tender with immediate effect. These two denominations constituted approximately 86 per cent by value of all banknotes in circulation. The stated objectives were to reduce the stock of black money held in cash, combat counterfeiting, and promote digital payments.

The RBI’s role was principally operational: managing the logistics of banknote replacement – including the issue of new Rs 500 and Rs 2,000 notes – and establishing rules for exchange of old notes. The policy decision itself was taken by the Central Government under Section 26(2) of the RBI Act, which empowers the Central Government to declare, on the recommendation of the Central Board of the RBI, that any series of banknotes shall cease to be legal tender.

The economic and legal consequences of the 2016 demonetisation have been extensively debated. A five-judge Constitution Bench of the Supreme Court of India upheld the legality of the demonetisation order in January 2023 by a four-to-one majority, though the minority judgment found the process to have been procedurally deficient because the government had in substance directed the RBI rather than acting on the RBI’s recommendation.

Financial sector reforms from 1991

The liberalisation programme that began in 1991 transformed the RBI’s role. Interest rate deregulation – progressively implemented through the 1990s – dismantled the administered rate structure. The entry of private sector and foreign banks under new licensing policies (1993) ended the near-monopoly of public sector banks. The introduction of capital adequacy norms aligned with Basel I (and subsequently Basel II and Basel III) brought Indian banking regulation into the international mainstream. A market-based government securities market replaced the earlier system in which government borrowing was financed at below-market rates.

Organisational structure

The Central Board of Directors

The RBI is governed by a Central Board of Directors comprising:

• a Governor, appointed by the Central Government for a term of up to five years, reappointable. The Governor is the chief executive of the RBI and chairs the Central Board and the Monetary Policy Committee;
• up to four Deputy Governors, each with functional responsibilities (monetary policy, banking regulation, foreign exchange, currency and financial markets);
• ten Directors nominated by the Central Government, representing various regional, professional, and institutional interests; and
• two government nominees: the Finance Secretary and the Secretary of the Department of Financial Services, attending as ex-officio representatives of the government.

The Central Board meets at least six times per year. The Governor has a casting vote on tied decisions.

Local Boards

The RBI Act provides for Local Boards in Kolkata, Chennai, Delhi, and Mumbai. Local Boards are advisory in character and represent regional interests to the Central Board. They do not have executive authority over RBI operations.

The Monetary Policy Committee

The Monetary Policy Committee (MPC) was constituted under Section 45ZB of the RBI Act, as inserted by the Finance Act, 2016. The MPC consists of six members:

• the Governor (Chairman with casting vote);
• a Deputy Governor responsible for monetary policy;
• an officer of the RBI nominated by the Central Board; and
• three external members appointed by the Central Government for four-year terms, not eligible for reappointment.

The MPC is mandated to set the benchmark policy rate (the repo rate) to achieve the inflation target. Decisions are taken by majority vote; in the event of a tie, the Governor’s casting vote is decisive. Every MPC member must record their vote and, in the case of a dissent from the majority decision, must provide written reasons. The MPC’s statement and the minutes of its meeting (which include individual voting records) are published on the RBI’s website, significantly enhancing the transparency of monetary policy compared to the pre-MPC era.

The MPC meets at least four times per year. The 2016 framework replaced the earlier system in which the Governor had sole authority to set the policy rate, reducing the opacity and personalisation of monetary policy decision-making.

Principal departments

Monetary policy framework

Inflation targeting (2016 onwards)

The monetary policy framework agreement between the Government of India and the RBI, signed in February 2015 and subsequently given statutory form through an amendment to the RBI Act in May 2016, established CPI inflation of 4 per cent (with a tolerance band of 2 per cent to 6 per cent) as the statutory target for the MPC. The target is set by the Central Government in consultation with the RBI every five years.

The accountability mechanism is notable: if the MPC fails to achieve the target for three consecutive quarters – meaning CPI inflation remains outside the 2-6 per cent band for three quarters in a row – the MPC must submit a report to the Central Government explaining the reasons for the failure and the corrective steps proposed. This escalation mechanism is intended to anchor public expectations of price stability.

The policy instrument is the repo rate – the rate at which the RBI lends overnight funds to commercial banks against government securities (under repurchase agreements). The repo rate stood at 5.25 per cent as of June 2026, after a sequence of cuts from the 6.50 per cent that had prevailed through early 2025 and a hold at the MPC’s June 2026 meeting. Ancillary instruments include:

• the reverse repo rate: the rate paid on overnight deposits placed by banks with the RBI, establishing the lower bound of the interest rate corridor;
• the Standing Deposit Facility (SDF) rate: introduced in April 2022 as an uncollateralised deposit facility for banks, replacing the reverse repo as the lower bound of the corridor;
• the Marginal Standing Facility (MSF) rate: the rate at which banks may borrow overnight against approved securities outside the normal repo window, set above the repo rate; and
• the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR): blunt quantitative instruments adjusted occasionally to drain or inject systemic liquidity.

Open market operations and liquidity management

The RBI manages daily system liquidity through:

• Variable Rate Repo (VRR) and Variable Rate Reverse Repo (VRRR) auctions: the principal instruments for injecting or draining liquidity on a short-term basis, at market-determined rates within the policy corridor;
• Open Market Operations (OMOs): outright purchase or sale of government securities to durably inject or drain rupee liquidity;
• Forex swaps: purchase or sale of dollars against rupees with a forward leg, used to inject or drain domestic liquidity while managing the exchange rate; and
• Targeted Long-Term Repo Operations (TLTROs): introduced during the COVID-19 pandemic to channel liquidity to specific sectors (corporate bond markets, NBFC sector) at the repo rate for defined tenors.

Key regulatory roles

Banker to the government

The RBI maintains the current account of the Central Government and all State Governments, manages their daily cash balances, and conducts their market borrowing through weekly auctions of government securities (dated G-secs) and treasury bills (T-bills). The primary dealer system – a group of about twenty banks and non-bank entities committed to underwriting government securities auctions and maintaining secondary market liquidity – is the institutional mechanism through which the G-sec market functions.

The RBI provides a Ways and Means Advances (WMA) facility to the Central Government (and separately to State Governments) to bridge intraday and short-term revenue-expenditure mismatches during the financial year. The interest rate on WMA is the repo rate; overdraft beyond the WMA limit triggers a higher penalty rate and requires immediate remediation. The RBI’s role as the government’s debt manager creates a structural tension with its monetary policy role: a government with large borrowing needs may pressure the RBI to hold interest rates lower than monetary policy objectives alone would suggest. This tension is a recognised feature of the central bank-government relationship in India and is managed through the legal independence framework of the RBI Act.

Banker to banks

Commercial banks are required to maintain:

• a Cash Reserve Ratio (CRR) – a fraction of their net demand and time liabilities (NDTL) held as overnight deposits with the RBI, earning no interest. The CRR was 3.00 per cent as of June 2026, reduced from 4 per cent in 100 basis point stages over the course of 2025;
• a Statutory Liquidity Ratio (SLR) – a minimum proportion of NDTL held in government securities, gold, or cash. The SLR was 18.00 per cent as of June 2026.

CRR is a monetary policy instrument: increasing it drains systemic liquidity; reducing it injects liquidity. SLR serves both a prudential function (ensuring banks hold a buffer of liquid assets) and a fiscal function (captive demand for government securities).

The RBI is the lender of last resort: it provides emergency liquidity to solvent but illiquid banks under the MSF and, in extremis, through emergency credit lines. This function is essential to financial stability; the knowledge that the RBI will provide liquidity prevents solvent banks from failing due to temporary illiquidity and limits contagion in financial panics.

Banking supervision

The RBI supervises:

• Scheduled commercial banks (public sector, private sector, foreign, small finance, and payments banks);
• Regional Rural Banks (RRBs): sponsored by public sector commercial banks and operating in rural areas;
• Urban Co-operative Banks (UCBs): supervision was fully transferred to the RBI under the Banking Regulation (Amendment) Act, 2020 following failures at several large UCBs;
• Non-Banking Financial Companies (NBFCs): a heterogeneous category including infrastructure finance companies, microfinance institutions, housing finance companies, and core investment companies.

Supervisory methodology includes:

• CAMELS inspection: an on-site assessment of Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk, conducted by teams of RBI examiners;
• off-site monitoring: analysis of statutory returns, XBRL filings, and call report data on a continuous basis;
• the Prompt Corrective Action (PCA) framework: a structured early intervention scheme that imposes restrictions on dividend payments, branch expansion, and new business lines when a bank breaches minimum thresholds for capital adequacy, asset quality, or profitability. Banks under PCA are required to submit time-bound remediation plans; the RBI monitors compliance and may escalate to resolution if improvement does not occur.

Payment systems regulation

The RBI regulates all payment systems under the Payment and Settlement Systems Act, 2007 (PSS Act). Key payment systems authorised and overseen by the RBI include:

• Unified Payments Interface (UPI): a real-time payment system operated by the National Payments Corporation of India (NPCI), processing over 17 billion transactions per month as of early 2025 and constituting the world’s largest real-time retail payment system by volume;
• Immediate Payment Service (IMPS): a 24x7 interbank funds transfer service;
• National Automated Clearing House (NACH): for bulk debit and credit mandates (ECS replacement);
• RuPay: India’s domestic card payment network, an alternative to Visa and Mastercard;
• Aadhaar-enabled Payment System (AePS): enabling cash withdrawals and balance enquiries using biometric authentication at banking correspondents;
• Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT): operated directly by the RBI for large-value and retail interbank transfers respectively.

NPCI (National Payments Corporation of India) is a not-for-profit infrastructure company promoted jointly by the RBI and the Indian Banks’ Association (IBA) and owned by a consortium of banks. NPCI designs, builds, and operates the retail payment rails; the RBI sets policy and provides oversight.

The RBI’s zero-merchant-discount-rate (zero-MDR) policy for UPI and RuPay debit card transactions – introduced in December 2019 – eliminated merchant fees on these payment instruments to drive acceptance. This decision has been controversial: NPCI and banks argue that zero MDR makes the payment infrastructure economically unviable without government subsidy; the government and RBI maintain that the policy is necessary to accelerate financial inclusion and cash displacement.

Foreign exchange management

The Foreign Exchange Management Act, 1999 (FEMA) – which replaced the Foreign Exchange Regulation Act, 1973 (FERA) as part of the 1991-era liberalisation programme – designates the RBI as the authority for administering foreign exchange regulations. Under FEMA, transactions are divided into current account transactions (generally freely permitted subject to documentation) and capital account transactions (subject to RBI regulation).

Key functions include:

• managing India’s foreign exchange reserves (approximately $690 billion as of May 2026, per the RBI Weekly Statistical Supplement), invested primarily in G7 government bonds, gold, and SDRs, through the RBI’s internal investment portfolio;
• regulating External Commercial Borrowings (ECB): the RBI prescribes eligible borrowers, recognised lenders, minimum average maturities, end-use restrictions, and hedging requirements for Indian entities borrowing in foreign currency;
• administering the Liberalised Remittance Scheme (LRS): permitting resident individuals to remit up to $250,000 per year abroad for permissible purposes including education, travel, gifts, and overseas investments;
• monitoring Foreign Portfolio Investor (FPI) flows in debt securities in coordination with SEBI , which registers and regulates FPIs for equity investments; and
• intervening in the foreign exchange market to manage excessive volatility in the rupee-dollar rate, using the reserve portfolio and domestic liquidity management.

Governors – recent history

Raghuram Rajan (2013-2016)

Raghuram Rajan, an academic economist who had served as Chief Economic Adviser at the International Monetary Fund and as Chief Economic Adviser to the Government of India, brought an explicitly research-based approach to the governorship. The most consequential institutional change of his tenure was the formalisation of inflation targeting through the 2015 monetary policy framework agreement. He also initiated the Asset Quality Review (AQR) of 2015-2016, which required banks to recognise restructured loans as non-performing assets, ending a practice of “evergreening” stressed credit that had masked the true scale of bank NPAs. Rajan chose not to seek a second term, citing the difficulty of serving effectively when his independence had been publicly questioned by political figures.

Urjit Patel (2016-2018)

Urjit Patel, who had chaired the RBI committee that designed the inflation targeting framework, assumed the governorship in September 2016, weeks before the demonetisation announcement. His tenure was dominated by the operational challenge of demonetisation and by a deteriorating relationship with the Ministry of Finance over the following issues:

• the RBI’s Prompt Corrective Action (PCA) framework, which the government wanted relaxed to allow PCA-constrained public sector banks to resume lending;
• the government’s demand that the RBI transfer a larger proportion of its capital reserves to the government budget;
• the pace of interest rate reduction after inflation fell; and
• the RBI’s regulatory treatment of infrastructure finance.

Patel resigned in December 2018, citing personal reasons, becoming the first RBI Governor to resign before completing a term since Sir Benegal Rama Rau in 1957.

Shaktikanta Das (2018-2024)

Shaktikanta Das, a former Indian Administrative Service officer who had served as Economic Affairs Secretary, was appointed in December 2018. His tenure saw:

• the management of COVID-19’s economic shock, including emergency repo rate cuts, targeted credit facilities (TLTRO), a six-month loan moratorium, and the COVID-19 emergency credit line guarantee scheme;
• coordination with SEBI on T+1 equity settlement;
• the launch of the digital rupee (e-Rupee) CBDC pilot in November-December 2022;
• scale-based regulation for NBFCs (2022-2023); and
• issuance of draft guidelines on Expected Credit Loss (ECL) provisioning for banks.

Das was extended for a second term in December 2021, and his six-year tenure ended in December 2024 when he was not given a further extension. He is widely credited with having stabilised the institution and its relationship with the government after the turbulent Patel years.

Recent reforms and digital initiatives

Digital rupee (Central Bank Digital Currency)

The RBI launched a CBDC pilot for the wholesale segment in November 2022 and for the retail segment in December 2022, following an amendment to the RBI Act by the Finance Act, 2022, which inserted a definition of “bank note” that explicitly includes digital currency. The digital rupee (e-Rupee) is a direct liability of the RBI – unlike commercial bank money, which is a liability of a private bank – and is intended to be the digital equivalent of a physical banknote. It is issued in the same denominations as physical currency and may be held in mobile wallets provided by designated participating banks.

The retail pilot, which involves more than thirteen banks and is accessible in selected cities, tests use cases for peer-to-peer and merchant payments. Full public deployment remains in a controlled testing phase, with the RBI studying questions of privacy, interoperability with private digital payment systems, and the potential for bank disintermediation.

UPI internationalisation

The RBI has actively promoted cross-border UPI linkages, reflecting India’s interest in reducing the cost and friction of remittance flows and in projecting India’s payment technology globally. As of 2024, UPI is operational for payments in:

• Singapore (via a bilateral real-time link with PayNow, the Singaporean fast-payment system);
• UAE, Bhutan, Nepal, Mauritius, Sri Lanka, France: through direct UPI acceptance at merchants or via bilateral payment links.

India’s G20 presidency in 2023 placed cross-border payment interoperability as a flagship policy agenda, with the RBI contributing extensively to the G20’s “Priorities for Enhancing Cross-Border Payments” roadmap developed under the FSB’s oversight.

NBFC scale-based regulation

The RBI introduced a Scale-Based Regulation (SBR) framework for NBFCs in October 2021, effective from October 2022, classifying all NBFCs into four tiers:

• Base Layer (NBFC-BL): smaller, lower-risk NBFCs subject to minimal regulation, comparable to the pre-existing framework for smaller entities;
• Middle Layer (NBFC-ML): includes all deposit-taking NBFCs, non-deposit-taking NBFCs with asset size above Rs 1,000 crore, and select systemically important categories;
• Upper Layer (NBFC-UL): up to 25 NBFCs identified by the RBI as systemically significant, subject to the most extensive regulatory requirements including mandatory listing on a stock exchange within three years of identification;
• Top Layer (NBFC-TL): reserved for NBFCs that regulatorily systemically significant enough to require bank-equivalent oversight; initially unpopulated.

The SBR framework is explicitly proportionate: regulatory intensity scales with systemic importance and risk profile.

Expected Credit Loss provisioning

The RBI proposed transitioning Indian banks from the current Incurred Loss (IL) provisioning model – under which provisions are made only when a loan is assessed as impaired – to an Expected Credit Loss (ECL) model, aligned with the global standard set by IFRS 9 (implemented in India as Ind AS 109). Under ECL, banks must provision for losses expected over the life of a loan from the date of origination, using statistical models. Draft guidelines were issued in 2023. Implementation has been delayed to allow smaller banks additional time to build the credit risk modelling infrastructure required, with a phased transition now anticipated in the mid-2020s.

Financial stability

Financial Stability Report

The RBI publishes a Financial Stability Report (FSR) twice yearly (in January and July, approximately). The FSR covers systemic risk assessments, macro-stress tests of the banking system, interconnectedness analysis (including network analysis of bank-to-bank exposures), and sectoral credit quality trends. The FSR is a collaborative document produced by the Sub-Committee of the Financial Stability and Development Council (FSDC-SC), which is chaired by the RBI Governor and comprises the heads of all major Indian financial regulators.

Financial Stability and Development Council

The FSDC is chaired by the Finance Minister and includes the Governor of the RBI, the Chairman of SEBI, the Chairman of IRDAI (Insurance Regulatory and Development Authority of India), and the Chairman of PFRDA (Pension Fund Regulatory and Development Authority). The FSDC provides a coordination forum for macro-prudential oversight across the financial system and is the apex body for managing regulatory overlap and systemic risk monitoring.

Basel III implementation

The RBI has progressively implemented the Basel III capital framework for Indian banks. As of 2025, scheduled commercial banks are required to maintain:

• Common Equity Tier 1 (CET1) capital ratio: minimum 5.5% (plus capital conservation buffer of 2.5%), effective minimum 8%;
• Total Tier 1 capital ratio: minimum 7% (plus capital conservation buffer), effective 9.5%;
• Total capital ratio: minimum 9% (plus capital conservation buffer), effective 11.5%.

Domestic systemically important banks (D-SIBs) – a designation applied to SBI, HDFC Bank, and ICICI Bank, updated periodically – are required to hold additional CET1 surcharges of 0.2% to 0.8% of risk-weighted assets.

Criticisms and controversies

Reserve transfer dispute (2018-2019)

In 2018, the Ministry of Finance urged the RBI to transfer a significant portion of its accumulated economic capital (the surplus of the RBI’s total assets over its monetary liabilities and specific risk provisions) to the government budget. The government’s position was that the RBI was over-capitalised by international central bank standards. The RBI’s position, articulated by then-Governor Urjit Patel and Deputy Governor Viral Acharya, was that the capital buffer was essential for the RBI’s balance sheet strength and credibility. Acharya’s October 2018 speech arguing for the importance of central bank independence – delivered days before Patel’s resignation – was widely seen as an implicit critique of government pressure.

A committee chaired by former Governor Bimal Jalan was constituted in late 2018 to recommend an appropriate economic capital framework. Its August 2019 report recommended maintaining a contingency risk buffer of 5.5 to 6.5 per cent of the RBI’s balance sheet and transferring surplus above this level to the government. The framework has since governed annual surplus transfers; in FY2024, the RBI transferred a record Rs 2.11 lakh crore to the government.

Inadequate recognition of bank NPAs

The RBI has faced sustained criticism for tolerating the practice of “evergreening” – the extension of new loans to service old ones, restructuring stressed accounts in ways that avoided NPA classification, and accepting optimistic valuations of stressed assets – at public sector banks during the infrastructure lending boom of 2007-2012. The AQR initiated under Raghuram Rajan in 2015, which compelled banks to recognise truly stressed loans as NPAs rather than classifying them as “standard restructured assets,” led to a sharp rise in reported NPA ratios and the triggering of the PCA framework for several public sector banks.

Critics argue that earlier recognition of the problem would have limited the eventual scale of the bad loan crisis. Defenders of the pre-AQR approach point to the external economic environment (slowing growth, regulatory approvals delays) as the primary cause and argue that premature recognition would have withdrawn credit from viable projects.

Co-operative bank failures

The failure of several large urban co-operative banks – notably the Punjab and Maharashtra Co-operative (PMC) Bank (2019) and Yes Co-operative Bank – exposed overlapping regulatory jurisdiction between the RBI (for banking activities) and state governments (for co-operative societies law). Depositors at PMC Bank were initially barred from withdrawing more than prescribed limits while the RBI administered the bank. The Banking Regulation (Amendment) Act, 2020 expanded the RBI’s supervisory powers over urban co-operative banks, clarifying jurisdiction, but the episode highlighted the risks of regulatory gaps in a complex federal structure.

Demonetisation operational failures

Independent assessments of the 2016 demonetisation have documented significant operational failures in the RBI’s management of the note replacement process: cash shortage lasted for months in many regions; the new Rs 2,000 notes introduced to replace Rs 1,000 notes were incompatible with existing ATM cassettes, requiring hardware modification; and the sequential re-calibration of ATMs across the country was slow. The RBI’s Annual Report for 2017-18 confirmed that 99.3 per cent of the demonetised currency had been returned to the banking system, a figure that critics argued undermined the stated objective of eliminating black money held as cash.

International engagements

The RBI is a member of the Bank for International Settlements (BIS) and participates in the principal Basel-process bodies: the Basel Committee on Banking Supervision (BCBS) (as a full member), the Committee on Payments and Market Infrastructures (CPMI), and the Financial Stability Board (FSB) (as a member in its own right and through India’s G20 participation). The RBI is also a member of the Asian Clearing Union (ACU), which facilitates trade settlements among central banks in the Asian region.

Bilateral currency swap arrangements with other central banks provide a further layer of external liquidity assurance; the RBI has swap lines with the Bank of Japan, the Bank of England, and the UAE central bank, among others.

References

1. Reserve Bank of India Act, 1934 (Act No. 2 of 1934), as amended through the Finance Act, 2022. Ministry of Law and Justice, Government of India.
2. Banking Regulation Act, 1949 (Act No. 10 of 1949), as amended. Ministry of Finance, Government of India.
3. Reserve Bank of India (Transfer to Public Ownership) Act, 1948.
4. Foreign Exchange Management Act, 1999 (FEMA). Ministry of Finance, Government of India.
5. Payment and Settlement Systems Act, 2007 (PSS Act). RBI.
6. RBI Annual Report 2023-24. Reserve Bank of India, Mumbai.
7. RBI Financial Stability Report, December 2024. Reserve Bank of India.
8. Report of the Expert Committee to Revise and Strengthen the Monetary Policy Framework (Urjit Patel Committee Report), January 2014. Reserve Bank of India.
9. Report of the Internal Working Group to Review Extant Ownership Guidelines and Corporate Structure for Indian Private Sector Banks, November 2020. RBI.
10. Report of the Bimal Jalan Committee on Economic Capital Framework, August 2019. Reserve Bank of India.
11. National Payments Corporation of India. UPI Product Statistics. npci.org.in, accessed 2025.
12. Supreme Court of India. Vivek Narayan Sharma v. Union of India, (2023) 4 SCC 401. (Demonetisation validity judgment, January 2023.)
13. Basel Committee on Banking Supervision. “Basel III: A global regulatory framework for more resilient banks and banking systems.” Bank for International Settlements, December 2010 (revised June 2011).
14. RBI. Scale-Based Regulation (SBR): A Revised Regulatory Framework for NBFCs. RBI Circular RBI/2021-22/112 DoR.FIN.REC.No.45/03.10.119/2021-22, dated 22 October 2021.
15. RBI. “Introduction of Legal Entity Identifier for Large Value Transactions in Centralised Payment Systems.” Circular, RBI/2020-21/62, dated 5 January 2021.
16. Acharya, V. V. “On the Importance of Independent Regulatory Institutions – The Case of the Central Bank.” Speech, AD Shroff Memorial Lecture, 26 October 2018. Reserve Bank of India.