CURRENT AFFAIRS
CURRENT AFFAIRS
Description
The Reserve Bank of India (RBI), the country's primary financial institution, celebrates its 90th anniversary on April 1st, 2024. Prime Minister Narendra Modi is in attendance at the National Centre for the Performing Arts in Mumbai to commemorate this momentous milestone.
Establishment And History
The RBI was created on April 1, 1934, in response to the Royal Commission on Indian Currency and Finance's recommendations for maintaining monetary stability in the country. It began operations on April 1, 1935, with Sir Osborne Smith as the first Governor.
The RBI has seen 26 Governors over the years, with Shaktikanta Das serving as Governor from October 2021. The RBI's Central Office was formerly located in Kolkata, but was relocated to Mumbai in 1937.
Expanding Roles And Responsibilities
The RBI was initially responsible for currency issuance, banking services, and agricultural loans, but its responsibility has extended over the decades to include-
Money management
Regulation and oversight of the financial system
Management of Foreign Exchange
Regulation and oversight of payment and settlement systems
Developmental roles.
Significant Achievements
- Balance Sheet and Liquidity Support
The RBI's balance sheet currently stands at a staggering Rs 63 lakh crore as of March 31, 2023, which is higher than the government's annual budget. The RBI's solid balance sheet allowed it to give nearly 9% of GDP (US$ 227 billion) in liquidity support following COVID-19.
- Foreign exchange reserves
India's foreign exchange reserves presently at USD 642 billion, ranking fourth in the world. These reserves play an important role in sustaining the rupee's value and have helped India weather global crises such as the 1997 East Asian currency crisis and the 2008 financial crisis.
- Inflation Management
The RBI's responsibility in managing inflation and ensuring price stability has developed throughout time. A flexible inflation targeting system was formed in 2016, with a six-member Monetary Policy Committee (MPC) in charge of setting interest rates to keep inflation within a target range of 2-6%, with 4% being the target.
- Financial Sector Regulation
The RBI has implemented steps to reduce non-performing assets (NPAs) on banks' books while maintaining a comfortable capital adequacy ratio of 15-16%. It has also acted as a lender of last resort, rescuing struggling banks such as Yes Bank and Lakshmi Vilas Bank.
- Promoting Digital Payments
Over the last decade, the RBI has played an important role in encouraging digital payments. The Unified Payments Interface (UPI), an instant account-to-account transfer system, currently processes an astounding 12 billion transactions each month, with a total value of Rs 18.23 lakh crore in December 2022 alone.
Future Outlook
Over the next five years, UPI is expected to significantly diminish the share of NEFT and paper-based cheque transactions. Within the next 2-3 years, India's UPI transaction volume is likely to exceed that of global payment networks such as Visa and Mastercard.
As the RBI marks its 90th anniversary, it continues to play an important role in ensuring the country's economic stability, regulating the financial sector, and encouraging digital advancements in the payments ecosystem.
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