The Reserve Bank of India (RBI) is the central bank of India, established as a statutory institution under the Reserve Bank of India Act, 1934. It commenced operations on April 1, 1935, following the recommendations of the 1926 Royal Commission on Indian Currency and Finance, also known as the Hilton Young Commission. The RBI was created to regulate the issue of banknotes, maintain reserves to secure monetary stability, and operate the currency and credit system of the country. Initially a privately-owned shareholders' bank, it was nationalized on January 1, 1949, under the Reserve Bank (Transfer to Public Ownership) Act, 1948, and is now fully owned by the Government of India.
The RBI functions as the issuer of currency notes (except the one-rupee note and coins), the banker to the government, and the banker to commercial banks, acting as the lender of last resort. Its core mechanism for controlling the economy is through monetary policy, which aims to maintain price stability while keeping in mind the objective of growth. The RBI connects to the broader financial system through the Banking Regulation Act, 1949, which grants it extensive powers to supervise and regulate commercial banks.
A significant recent change is the establishment of the Monetary Policy Committee (MPC) in 2016. This six-member statutory body was constituted by an amendment to the RBI Act, 1934 (specifically, Section 45ZB), replacing the previous system where the RBI Governor alone set the policy rate. The MPC is tasked with determining the benchmark policy rate (the repo rate) to achieve the inflation target of 4% with a tolerance band of +/- 2% (i.e., between 2% and 6%), a framework formalized in 2016. This change institutionalized the Flexible Inflation Targeting (FIT) regime, bringing greater transparency and accountability to India's monetary policy decisions.