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Reserve Bank of India Act, 1934 – Part-I – Preamble and Section 1 to 13

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 first article in the series.

Preamble of the Act

RBI to –

  • Regulate the issue of bank notes.
  • Keep reserves for monetary stability in India.
  • Operate currency and credit system of the country to its advantage.

The primary objective of the monetary policy is to maintain price stability while keeping in mind the objective of growth.

Chapter I – Preliminary

Section 1 – Short title, extent and commencement

  • 1(1) – This Act may be called the Reserve Bank of India Act, 1934.
  • 1(2) – The Act extends to whole of India.

Chapter II - Incorporation, Capital, Management and Business

Section 3 – Establishment and incorporation of Reserve Bank

  • 3(1) – RBI to take over management of the currency from the Central Government.
  • 3(2) – RBI to have perpetual succession, common seal, and shall by the said name sue and be sued.

Section 4 – Capital of the Bank

  • Capital – Rs.5 crore

Section 6 – Offices, branches and agencies

  • Offices at Mumbai, Culcutta, Delhi and Madras.
  • Branches / agencies at any other place in India.
  • Offices / branches / agencies at elsewhere with prior sanction of the Central Government.

Section 7 – Management

  • 7(1) – The Central Government may give directions to RBI after consultation with the Governor of RBI.
  • 7(2) – For the Central Government directions, the Central Board has general superintendence.
  • 7(3) – For the Central Board regulations, Governor / in his absence Deputy Governor, has general superintendence.

Section 8 – Composition of the Central Board, and term of office of Directors

8(1) – The Central Board consists of – 

  • 8(1)(a) – Governor, and not more than 4 Deputy Governors appointed by the Central Government.
  • 8(1)(b) – 4 directors nominated by the Central Government, one each from Local Board.
  • 8(1)(c) – 10 directors nominated by the Central Government.
  • 8(1)(d) – 2 government officials nominated by the Central Government.

8(2) – Governor and Deputy Governors to devote their whole time to RBI. Salary and allowances decided by the Central Board, with the approval of the Central Government. The Central Board on request from the Central / State Government may allow Governor / Deputy Governor to take any other honorary work. The Central Government may appoint Deputy Governor as Chairman of the National Bank.

8(3) – Deputy Governor and Director under Section 8(1)(d) cannot vote at the Central Board meeting. If Governor is absent, then Deputy Governor may vote.

8(4) – Term of service

  • Governor and Deputy Governor – maximum 5 years, eligible for reappointment.
  • Director under Section 8(1)(c) – 4 years, eligible for reappointment.
  • Director under Section 8(1)(d) – during pleasure of the Central Government.

8(7) – Retiring Director eligible for re-nomination.

Section 9 – Local Boards, their constitution and functions

  • 9(1) – 4 Local Boards, 5 members each, appointed by the Central Government.
  • 9(2) – Members to elect chairman from amongst themselves.
  • 9(3) – Term of each member – 4 years, eligible for reappointment, Maximum 2 terms (total 8 years).

Section 10 – Disqualifications of Directors and members of Local Boards

10(1) – A person cannot be director / member of Local Board if he is –

  • 10(1)(a) – Salaried government official
  • 10(1)(b) – Insolvent
  • 10(1)(c) – Lunatic
  • 10(1)(d) – Officer / employee of any bank
  • 10(1)(e) – Director of banking company or co-operative bank

10(2) – 2 persons who are any of the following, cannot become director / member of same Local Board at the same time.

  • Partners of same firm
  • Directors of same company
  • From firm of which other is a partner

10(3) – 10(1)(a), 10(1)(d), 10(1)(e) does not apply to Governor / Deputy Governor / Director under Section 8(1)(d).

Section 11 – Removal from and vacation of office

  • 11(1) – The Central Government may remove Governor / Deputy Governor / Director of Local Board / Member of Local Board.
  • 11(2) – Director under Section 8(1)(b) or 8(1)(c) shall cease to hold office if he, without leave, absents himself from 3 consecutive meetings of the Central Board.
  • 11(3) – The Central Government may remove director of Local Board if they become disqualified under Section 10. The Central Board may remove member of Local Board if they become disqualified under Section 10.
  • 11(4) – Director / member of Local Board removed shall not be eligible for reappointment until expiry of the term for which he was appointed.
  • 11(5) – MP / MLA who become director / member of Local Board, shall cease to be MP / MLA within 2 months. Director / member of Local Board elected as MP / MLA, shall cease to be director / member of Local Board.
  • 11(6) – Director of Local Board may resign to the Central Government. Member of Local Board may resign to the Central Board.

Section 12 – Casual Vacancies and absences

  • 12(1) – Governor / Deputy Governor if unable to discharge duty, otherwise than vacation of his office, the Central Government after consideration of the recommendations by the Central Board, may appoint another person. Such person may be officer of RBI [as against section 10(1)(d)].
  • 12(3) – Casual vacancy of member of Local Board – the Central Board may nominate another person.
  • 12(4) – Casual vacancy of director of Local Board – the Central Government may nominate another person.
  • 12(5) – Person nominated under this section to fill casual vacancy, shall hold office for unexpired portion of the term of his predecessor.

Section 13 – Meetings of the Central Board

  • 13(1) – At least 6 meetings in a year and at least 1 meeting in a quarter.
  • 13(2) – Any 4 directors may request Governor to hold meeting.
  • 13(3) – If Governor is absent, Deputy Governor may attend meeting and vote, and also have casting vote / second vote.


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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