Skip to main content

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


Follow at - Telegram   Instagram   LinkedIn   Twitter

Labels:

Comments

Post a Comment

Popular Posts

Highlights of RBI Annual Report 2023-24 – Chapter 7 to 12

Reserve Bank of India (RBI) has published its annual report for the financial year 2023-24. In a series of articles, we will go through the highlights of the report. This is the fifth and last article in the series.  Chapter 7 – Public Debt Management Ways And Means Advances (WMA) limit for the Government of India (GoI) for H1:2023-24 (April to September 2023) was fixed at ₹1,50,000 crore and for H2:2023-24 (October 2023 to March 2024) was fixed at ₹50,000 crore. RBI issued an ultra-long security of 50-year tenor aggregating ₹30,000 crore to cater to the growing needs of long-term institutional players. Issuance of Sovereign Green Bonds (SGrBs) for an aggregate amount of ₹20,000 crore included maiden issuance of 30-year (₹10,000 crore) SGrB in addition to 5-year (₹5,000 crore) and 10-year (₹5,000 crore) SGrBs. A new 3-year benchmark security was introduced as part of government market borrowing programme during H1:2023-24.  The basket of products offered through the ‘Retail ...
Post a Comment
Read more

Lending against Gold and Silver collateral

Reserve Bank of India (RBI) has issued directions on lending against the collateral of gold and silver. To whom are the directions applicable? The directions are applicable to the following regulated entities (REs) – Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks, but excluding Payments Banks). Primary (Urban) Co-operative Banks (UCBs) & Rural Co-operative Banks (RCBs), i.e., State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs). Non-Banking Financial Companies (NBFCs), including Housing Finance Companies (HFCs). Which loans are covered under the directions? The directions shall apply to all loans offered by an RE for the purpose of consumption or income generation (including farm credit) where eligible gold or silver collateral is accepted as a collateral security. What is eligible collateral? Eligible collateral means the collateral of jewellery, ornaments or coins made of gold or silver. A lender shall not grant any ad...
Post a Comment
Read more

Prior approvals from or intimations / reporting to RBI by NBFC-BL

Non-Banking Financial Companies (NBFCs) are required to obtain prior approvals from Reserve Bank of India (RBI) or intimate / report to RBI various events. This article lists out some of such important events where prior approvals or intimations / reporting is required for Base Layer NBFCs (NBFC-BL). Events requiring prior approval from RBI  Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023 Para 30 – NBFCs shall prepare its balance sheet and profit and loss account as on March 31 every year. Whenever an NBFC intends to extend the date of its balance sheet as per provisions of the Companies Act, 2013, it shall take prior approval of RBI before approaching the Registrar of Companies for this purpose. Even in cases where RBI and the Registrar of Companies grant extension of time, the NBFC shall furnish to RBI a proforma balance sheet (unaudited) as on March 31 of the year and the statutory returns ...
Post a Comment
Read more

RBI’s Monetary Policy (June 06, 2025): In A Nutshell

The bi-monthly monetary policy of Reserve Bank of India (RBI) was announced on June 06, 2025. Here are some of the highlights of the monetary policy announcement. Rates   Change Rate Policy repo rate Reduced by 0.50% 5.50% Standing deposit facility (SDF) rate 5.25% Marginal standing facility (MSF) rate 5.75% Bank rate 5.75% Monetary policy stance Monetary policy stance was changed from ‘accommodative’ to ‘neutral’. Domestic Economy  The Indian economy presents a picture of strength, stability, and opportunity. The 5x3x3 matrix of fundamentals provides the necessary core strength to cushion the Indian economy against global spillovers and propel it to grow at a faster pace.  First, strength comes from the strong balance sheets of the 5 major sectors - corporates, banks, households, government, and the external sector.  Second, there is stability on all 3 fronts – price, financial, and political – providing policy and economic certainty.  Third, the Indian ec...
Post a Comment
Read more

What is KYC?

Be it opening a new bank account, applying for a new credit card, registering for new e-wallet, or any other account or facility involving financial matters, the application process is incomplete until KYC is done.  What is KYC? KYC or Know Your Customer is a process of customer identification and verification while opening an account or undertaking a financial transaction. Why is KYC process needed? To prevent money laundering To combat financing of terrorism What is verified under KYC? The banks / financial institutions collect the relevant documents from the customers to verify the following – Proof of identity Proof of address Which documents can be collected for KYC? As per RBI’s Master Direction - Know Your Customer (KYC) Direction, 2016 (Updated as on May 10, 2021), “Officially Valid Document” (OVD) means – Passport Driving licence Proof of possession of Aadhaar number Voter's Identity Card issued by the Election Commission of India Job card issued by NREGA duly signed by an...
Post a Comment
Read more