Powers of Reserve Bank of India

Powers of Reserve Bank of India

Subject – Economy

Context – RBI turns up the heat on errant banks, others.

Concept –

• The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934.
• The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated.
• Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.
• Reserve Bank derives extensive powers under RBI Act as well as Banking Regulation Act, to regulate and supervise various banks in India.

Powers –

Under Banking Regulation Act the RBI enjoys the following powers:

• Section 10 BB – Power of Reserve Bank to appoint Chairman of the Board of Directors appointed on a whole-time basis or a Managing Director of a banking company.
• Section 21 –Power of Reserve Bank to control advances by banking companies: Reserve Bank has the powers to determine policies and direct banking companies to follow the same.
• Section 22 –Licensing of banking companies: All Banking companies need to get a licence from RBI and it issues licence only after ‘tests of entry’ are fulfilled.
• Section 24A-Power to exempt a Co-operative bank: Without prejudice to the provisions of section 53, the RBI by notification in the Official Gazette, declare that, the whole or any part of the provisions of section 18 or section 24, as may be specified therein, shall not apply to any co-operative bank.
• Section 27 –Monthly returns and power to call for other returns and information: At any time, the RBI may direct a banking company to furnish it with such statements and information relating to the business or affairs of the banking company (including any business or affairs with which such banking company is concerned) as RBI may consider necessary or expedient to obtain for the purposes of this Act, apart from calling for information every half-year regarding the investments of a banking company and the classification of its advances in respect of industry, commerce and agriculture.
• Section 29A – Power in respect of associate enterprises: The RBI may direct a banking company to annex to its financial statements or furnish to it separately, within such time or intervals, necessary statements and information relating to the business or affairs of any associate enterprise of the banking company. It can also conduct an inspection of any associate enterprise of a banking company and its books of account jointly by one or more of its officers or employees or other persons along with the Board or authority regulating such associate enterprise.
• Section 30 – Power to order Special audit: In the public interest or in the interest of the banking company or its depositors, the RBI may at any time by order direct that a special audit of the banking company’s accounts.
• Section 35 – Inspection of Banking Companies: Reserve Bank on its own or being directed so to do by the Central Government, inspect any banking company and its books and accounts and supply to the banking company a copy of its report on such inspection.
• Section 35A – Power of the Reserve Bank to give directions: In the public interest or in the interest of Banking policy RBI has powers to issue, modify or cancel as it deems fit, and the banking companies or the banking company, are bound to comply with such directions.
• Section 36 – Further powers and functions of Reserve Bank: RBI may caution or prohibit banking companies or any banking company in particular against entering into any particular transaction or class of transactions.

In addition to the above, RBI also enjoys certain powers vis-a-vis banks under RBI Act as per the following table –