The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the third article in the series.
Chapter III - Central Banking Functions
Section 20 – Obligation of the Bank to transact Government business
RBI shall undertake –
- To accept monies for account of the Central Government and to make payments up to the amount standing to the credit of its account, and to carry out its exchange, remittance and other banking operations.
- Management of the public debt of the Union.
Section 21 – Bank to have the right to transact Government business in India
The Central Government shall entrust RBI with –
- All its money, remittance, exchange and banking transactions in India, and shall deposit free of interest all its cash balances with RBI. The Central Government may carry on money transactions at places where RBI has no branches or agencies and may hold at such places such balances as it may require.
- Management of the public debt and issue of any new loans.
Section 21A – Bank to transact Government business of States on agreement
RBI may by agreement with the Government of any State undertake –
- All its money, remittance, exchange and banking transactions in India, including deposit of all its cash balances with RBI, free of interest.
- Management of the public debt of, and the issue of any new loans by, that State.
Any agreement under this section, as soon as it is made, shall be laid before Parliament.
Section 22 – Right to issue bank notes
RBI shall have sole right to issue bank notes in India and currency note of Government of India.
Section 22A – Non-applicability of certain provisions to digital form of bank notes
Sections 24, 25, 27, 28 and 39 shall not apply to the bank notes in digital form issued by RBI.
Section 23 – Issue Department
- Issue of bank notes shall be conducted by the Issue Department, which shall be separate from the Banking Department. The assets of the Issue Department shall be subject to the liabilities of the Issue Department only.
- Issue Department shall not issue bank notes to the Banking Department or to any other person except in exchange for other bank notes / coin / bullion / securities.
Section 24 – Denominations of notes
- Rs.2, 5, 10, 20, 50, 100, 500, 1000, 5000, 10000. Maximum denomination Rs.10,000.
- On the recommendation of the Central Board, the Central Government may discontinue any denomination of the bank notes.
Section 25 – Form of bank notes
Design, form and material of bank notes approved by the Central Government after consideration of the recommendations by the Central Board.
Section 26 – Legal tender character of notes
- Every bank note shall be legal tender and shall be guaranteed by the Central Government.
- On the recommendation of the Central Board, the Central Government may declare any series of bank notes denomination to cease to be legal tender.
Section 27 – Re-issue of notes
RBI shall not reissue bank notes which are torn, defaced or excessively soiled.
Section 28 - Recovery of notes lost, stolen, mutilated or imperfect
- Person shall not have right to recover from the Central Government or RBI, the value of any lost, stolen, mutilated or imperfect currency note / bank note.
- With the previous sanction of the Central Government, RBI may prescribe the circumstances in and the conditions and limitations subject to which the value of such currency notes / bank notes may be refunded as of grace.
Section 28A – Issue of special bank notes and special one rupee notes in certain cases
- For controlling the circulation of bank notes outside India, RBI may issue ‘special bank notes’ of Rs.5, 10, 100.
- For controlling the circulation of Government of India Re.1 notes outside India, the Central Government may issue ‘special one rupee note’.
- Design, form and material of special bank notes – approved by the Central Government after consideration of the recommendations by the Governor.
- Design, form and material of special one rupee notes – approved by the Central Government.
- These notes shall not be legal tender in India.
Section 29 – RBI exempt from stamp duty on bank note
RBI shall not be liable to pay any stamp duty under the Indian Stamp Act, 1899, in respect of bank notes issued by it.
Section 30 – Powers of Central Government to supersede Central Board
- The Central Government may supersede the Central Board of RBI.
- When action is taken under this section, the Central Government shall give full report of the circumstances leading to such action, to the Parliament within 3 months.
Section 31 – Issue of demand bills and notes
- Only RBI shall draw, accept, make or issue any bills of exchange, promissory note, etc. payable to bearer on demand; except those drawn on a person’s account with a banker, shroff or agent.
- Only RBI shall make / issue any promissory note payable to bearer.
- The Central Government may authorize any scheduled bank to issue electoral bond.
Section 33 – Assets of the Issue Department
Assets of the Issue Department – Gold coin / bullion, foreign securities, rupee coin and rupee securities, in aggregate shall not be less than the liabilities of the Issue Department.
Aggregate value of gold coin / bullion and foreign securities held as assets – not less than Rs.200 crore.
Aggregate value of gold coin / bullion held as assets – not less than Rs.115 crore.
Remaining assets in –
- Rupee coin.
- Government of India rupee securities.
- Promissory notes drawn by National Bank for loans under Section 17.
- Bills of exchange and promissory note payable in India eligible for purchase by RBI under Section 17 or 18.
Gold coin / bullion valued at a price not exceeding the international market price.
Rupee coin valued at face value.
Securities valued at rates not exceeding the market rates.
Of the gold coin / bullion held as assets, at least 17/20 shall be in India. All gold coin / bullion held as assets shall be in the custody of RBI / its agencies.
Foreign securities which is part of assets shall be –
- Securities of the following kinds payable in the currency of any foreign country which is member of the IMF –
- Balances with principal currency authority of foreign country; balances / securities in foreign currency issued by IMF, IBRD, IDA / IFC / ADB / BIS / any banking or financial institution approved by the Central Government; repayable within 10 years.
- Bills of exchange bearing 2 or more good signatures – drawn on and payable in foreign country, having maturity up to 90 days.
- Government securities of foreign country maturing within 10 years.
- Any drawing rights representing liability of the IMF.
Section 34 – Liabilities of the Issue Department
Liabilities of the Issue Department shall be equal to the notes in circulation.
Section 37 – Suspension of assets requirements as to foreign securities
With prior sanction of the Central Government, RBI may hold assets in foreign securities less than that required under Section 33(2), for up to 6 months, which may be further extended by up to 3 months at a time.
Section 38 – Obligations of Government and the Bank in respect of rupee coin
- The Central Government shall put into circulation any rupees only through RBI.
- RBI shall dispose of rupee coin only for circulation.
Section 39 – Obligation to supply different forms of currency
- RBI shall exchange coins for currency notes / bank notes and vice-a-versa.
- RBI shall exchange currency notes / bank notes of lower denominations for currency notes / bank notes of higher denominations.
- If the Central Government at any time fails to supply coins, RBI shall be released from its obligations to supply them to the public.
Section 40 – Transactions in foreign exchange
RBI shall sell / buy foreign exchange from authorised person (under FEMA), of not less than Rs.2 lakhs.
References
Reserve Bank of India. (2022, August 29). 'The Reserve Bank of India Act, 1934'. Retrieved from https://rbi.org.in/Scripts/OccasionalPublications.aspx?head=Reserve%20Bank%20of%20India%20Act
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