The Reserve Bank of India does far more than set the repo rate. It runs monetary policy, licenses and supervises banks, manages foreign exchange, issues notes, banks for the government and for banks, and oversees the systems that move money between them. This part takes each function in turn, as the RBI itself describes it, and gives the law behind it, which is the level of detail that RBI Grade B, SBI PO and IBPS PO questions tend to test.
If you have not read Part 1, start with the history and evolution of the RBI. It explains how a shareholder-owned bank set up in 1935 became the state-owned regulator described here.
In the news
Every function in this article showed up in the news in the past year. These items, newest first, are the ones most likely to be turned into current-affairs questions.
- 23 October 2026: Forex reserves fall to US$721.0 billion. RBI data released on 23 October put reserves at US$721.0 billion for the week ended 16 October, down US$5.0 billion in a week and well below the record of US$785.7 billion reached on 4 September 2026. Why it matters for the exam: managing the reserves is part of the RBI's role as manager of foreign exchange, and the record figure and its date are likely to be asked.
- 9 October 2026: Banks must keep 99% of their CRR every day. Under Section 42(1) of the RBI Act, the RBI raised the minimum daily CRR balance from 90% to 99% of the required amount, with effect from the fortnight beginning 16 October 2026, after a review of liquidity conditions. Why it matters for the exam: it shows that the RBI, as banker to banks, can change how the CRR is kept as well as the ratio itself.
- 7 October 2026: Repo rate raised to 5.50%. The MPC unanimously raised the repo rate by 25 basis points to 5.50% and, by a 4–2 vote, changed its stance to "calibrated tightening". It also raised its 2026-27 CPI inflation projection to 5.2% and its real GDP growth projection to 7.1%. Why it matters for the exam: the current repo, SDF and MSF rates are among the most frequently asked banking-awareness facts.
- 14 August 2026: ₹59.20 lakh penalty on IndusInd Bank. The RBI fined the bank under Section 47A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act for breaching its directions on interest rates on deposits and on securitisation of standard assets. The inspection found that the bank had paid interest on some current accounts and carried out "synthetic securitisation". Why it matters for the exam: monetary penalties are the most common way the RBI enforces its role as regulator, and questions often ask for the section used.
- 16 July 2026: Financial Inclusion Index reaches 70.0. The RBI's FI-Index for March 2026 stood at 70.0, up from 67.0 in March 2025, with growth in all sub-indices, driven mainly by greater use of financial services. Why it matters for the exam: the FI-Index (scale 0 to 100, first published in August 2021) measures the RBI's developmental role.
- 24 June 2026: New rules on customer liability in digital fraud. The RBI issued amendment directions that extend limits on customer liability to more kinds of fraudulent electronic banking transactions, shorten the time banks take to handle such complaints, and add a compensation mechanism for small-value frauds. They come into force on 1 January 2027. Why it matters for the exam: consumer protection in digital payments is a focus of Payments Vision 2028 and a likely Phase II topic.
- 29 May 2026: Fake ₹500 notes up 20.5%. The RBI's Annual Report for 2025-26 showed counterfeit ₹500 notes detected in the banking system rising to 1,41,907 pieces from 1,17,722 a year earlier. Total counterfeits rose 5.7% to 2,29,746 pieces, while fake ₹2,000 notes fell to 824. Why it matters for the exam: counterfeit data from the Annual Report is a regular question on the RBI's currency-management function.
- 22 May 2026: Record ₹2.87 lakh crore surplus transfer. At its 623rd meeting, the Central Board approved the transfer of ₹2,86,588.46 crore to the Central Government for 2025-26, after keeping the Contingent Risk Buffer at 6.5% of the balance sheet. Why it matters for the exam: the transfer is made under Section 47 of the RBI Act and is a key link between the RBI and the government.
The RBI's own list of functions
The RBI's "About Us" page lists its main functions as monetary authority; regulator and supervisor of the financial system; manager of foreign exchange; issuer of currency; developmental role; regulator and supervisor of payment and settlement systems; and related functions, which include acting as banker to the central and state governments and to the banks. Textbooks often split "banker to government" and "banker to banks" into separate headings, and this article does the same, because exam questions usually treat them separately.
The legal foundation is the Reserve Bank of India Act, 1934. Its Preamble says the Bank was constituted "to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India". Since the 2016 amendment, it also says that "the primary objective of the monetary policy is to maintain price stability while keeping in mind the objective of growth". Other statutes add specific powers: the Banking Regulation Act, 1949 (banks), the Foreign Exchange Management Act, 1999 (forex), the Payment and Settlement Systems Act, 2007 (payments), and several more that the RBI lists as Acts it administers, including the Government Securities Act, 2006 and the Credit Information Companies (Regulation) Act, 2005.
How the RBI is governed
The Central Board
Under Section 7 of the RBI Act, the "general superintendence and direction" of the Bank's affairs rests with the Central Board of Directors. Section 8 sets out who sits on it:
- the Governor and up to four Deputy Governors, appointed by the Central Government;
- four directors nominated by the government, one from each of the four Local Boards;
- ten directors nominated by the government from various fields;
- two government officials nominated by the government.
The Governor and Deputy Governors hold office for up to five years and can be reappointed. The ten nominated directors serve four years, for at most two terms. Government-official directors serve at the government's pleasure. Deputy Governors and the two official directors can attend and speak at Board meetings but cannot vote, except that a Deputy Governor authorised by the Governor may vote in the Governor's absence.
Under Section 13, the Governor must convene Board meetings at least six times a year and at least once each quarter. Section 9 creates a Local Board for each of the four regional areas listed in the Act's First Schedule, each with five members appointed by the Central Government.
The Board works through committees. The best known is the Board for Financial Supervision (BFS), set up in November 1994 as a committee of the Central Board to oversee integrated supervision of banks, financial institutions and non-banking financial companies. Payments have their own committee, the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), covered later.
The Governor
Section 7 also gives the Governor (or, in the Governor's absence, a Deputy Governor nominated by the Governor) general superintendence of the Bank's affairs, subject to the Board's regulations. In practice, the Governor is the Bank's chief executive and, by law, chairs the Monetary Policy Committee.
The relationship with the Government
The RBI is owned by the Government of India, but its relationship with the government is set by statute. The main links are:
- Section 7(1): the Central Government may give the Bank directions it considers necessary in the public interest, but only after consulting the Governor. This is the most frequently tested section on autonomy.
- Appointments (Section 8): the government appoints the Governor, Deputy Governors and directors.
- Inflation target (Section 45ZA): the government, in consultation with the RBI, sets the inflation target.
- Surplus (Section 47): after provisions for bad debts, depreciation, staff funds and the like, the balance of the RBI's profits is paid to the Central Government.
1. Monetary authority
The RBI's first listed function is to formulate, implement and monitor monetary policy. Since the 2016 amendment to the RBI Act, India has had a statutory flexible inflation targeting framework. This section gives the outline. Later parts of this series go deeper into the Monetary Policy Committee, the policy rates and liquidity management.
The inflation target
Section 45ZA says the Central Government, in consultation with the RBI, determines the inflation target "in terms of the Consumer Price Index, once in every five years" and notifies it in the Official Gazette. The history so far:
| Notification | Period | Target |
|---|---|---|
| 5 August 2016 | 5 August 2016 to 31 March 2021 | 4% CPI, band 2% to 6% |
| 31 March 2021 (first review) | 1 April 2021 to 31 March 2026 | Retained unchanged |
| 25 March 2026 (second review) | 1 April 2026 to 31 March 2031 | Retained unchanged |
So the target in force today is 4% CPI inflation, with an upper tolerance level of 6% and a lower tolerance level of 2%, for 1 April 2026 to 31 March 2031. The 2026 renewal (Gazette notification S.O. 1580(E), 25 March 2026) followed a public review that the RBI opened with a discussion paper in August 2025. Every feature of the framework was kept.
What counts as failure
The government has notified that the RBI fails to meet the target if average inflation is above 6% or below 2% for any three consecutive quarters. Under Section 45ZN, the RBI must then send the government a report setting out the reasons for the failure, the remedial action it proposes, and an estimate of when the target will be met. This happened once, in 2022, after inflation stayed above 6% for three straight quarters.
The Monetary Policy Committee
Section 45ZB provides for a six-member Monetary Policy Committee (MPC) that decides the policy repo rate needed to achieve the target. Its decision is binding on the Bank. The members are:
- the Governor (chairperson, ex officio);
- the Deputy Governor in charge of monetary policy;
- one RBI officer nominated by the Central Board;
- three external members appointed by the Central Government on the recommendation of a search-cum-selection committee chaired by the Cabinet Secretary (Section 45ZC). They serve four years and cannot be reappointed (Section 45ZD).
Under Section 45ZI, the MPC meets at least four times a year. The quorum is four, including the Governor or, in the Governor's absence, the Deputy Governor. Each member has one vote, and the Governor has a casting vote if the votes are tied. Section 45ZL requires the minutes, including each member's vote and reasons, to be published on the fourteenth day after the meeting. Section 45ZM requires a Monetary Policy Report every six months, explaining the sources of inflation and forecasting it six to eighteen months ahead.
Tools in brief
The main instrument is the policy repo rate, the rate at which the RBI lends to banks overnight against government securities. Around it sit the Standing Deposit Facility (SDF) rate below and the Marginal Standing Facility (MSF) rate and Bank Rate above, which together form the corridor of the Liquidity Adjustment Facility (LAF). The RBI's operating target is the weighted average call rate (WACR), which it tries to keep close to the repo rate through liquidity operations. Other tools include the cash reserve ratio (CRR), which banks keep with the RBI under Section 42 of the RBI Act, the statutory liquidity ratio (SLR) under Section 24 of the Banking Regulation Act, and open market operations.
At its meeting of 5 to 7 October 2026, the MPC voted unanimously to raise the repo rate by 25 basis points to 5.50%. That put the SDF rate at 5.25% and the MSF rate and Bank Rate at 5.75%, and the MPC changed its stance to "calibrated tightening" by a 4–2 vote. These are the rates as of 24 October 2026. They change at each policy meeting, so check the latest statement before an exam.
Recent example: the October 2026 statement reported that, since the August policy, the RBI had absorbed surplus liquidity through 55 variable rate reverse repo (VRRR) auctions and open market sales of ₹1.0 lakh crore, to keep the WACR aligned with the repo rate.
Has the framework worked?
In a May 2026 speech, Deputy Governor Poonam Gupta noted that average CPI inflation fell from 8.1% in the decade before inflation targeting (2006–16) to 4.6% in the targeting decade (2016–26). Annual average inflation went above the 6% upper limit twice, in 2020-21 (the pandemic) and 2022-23 (the Russia–Ukraine war). It never fell below 2% on an annual-average basis, although it was briefly below 2% during 2025-26. Government data show the annual average falling from 6.7% in 2022-23 to 5.4% in 2023-24 and 4.6% in 2024-25.
2. Regulator and supervisor of the financial system
The RBI "prescribes broad parameters of banking operations within which the country's banking and financial system functions". Its stated aims are to maintain public confidence in the system, protect depositors' interests and provide cost-effective banking services to the public.
Whom the RBI regulates
- Commercial banks, including public sector, private, foreign, small finance, payments and regional rural banks.
- Co-operative banks. The Banking Regulation Act was extended to co-operative societies in 1966, creating what the RBI calls "duality of control": the RBI regulates banking functions, while state or central registrars handle management matters. Primary agricultural credit societies (PACS) are outside the Banking Regulation Act and are not regulated by the RBI. NABARD inspects state and central co-operative banks under powers delegated by the RBI.
- Non-banking financial companies (NBFCs), under Chapter III-B of the RBI Act.
- All-India financial institutions, credit information companies and asset reconstruction companies.
The legal tools
The Banking Regulation Act, 1949 gives the RBI its core powers over banks:
- Section 22: no company can carry on banking business in India without a licence from the RBI.
- Section 24: banks must maintain liquid assets, the SLR.
- Section 35: the RBI can inspect banks.
- Section 35A: the RBI can give directions to banks in the public interest, in the interest of depositors or to secure proper management. Business restrictions on individual banks are usually imposed under this section.
The RBI Act adds Section 45L, which lets the RBI call for information from financial institutions and give them directions, and Sections 45U to 45X (Chapter III-D), which let it regulate dealings in money market instruments, derivatives, repos and similar instruments.
Supervision is risk-based and is overseen by the Board for Financial Supervision. The RBI also has a financial stability role: it publishes a half-yearly Financial Stability Report assessing risks to the system.
Recent example: on 28 November 2025 the RBI issued 244 consolidated Master Directions, organised for 11 types of regulated entities, and repealed or withdrew 9,445 circulars, bringing more than 9,000 separate instructions into one set of rules per topic. On the enforcement side, the ₹59.20 lakh penalty on IndusInd Bank in August 2026 was imposed under Section 47A of the Banking Regulation Act, the usual provision for monetary penalties on banks.
3. Manager of foreign exchange
The RBI administers the Foreign Exchange Management Act, 1999 (FEMA). Its stated objective is to facilitate external trade and payments and to promote the orderly development and maintenance of the foreign exchange market in India. FEMA replaced the stricter Foreign Exchange Regulation Act, 1973 (FERA) and came into force on 1 June 2000. The change in name, from "regulation" to "management", reflects a shift from control to facilitation.
In practice:
- The RBI authorises banks and others as "authorised persons" (authorised dealers, money changers and so on) under Section 10 of FEMA, and issues directions to them. Most individuals therefore deal with their bank rather than with the RBI.
- It frames regulations on current and capital account transactions, such as foreign investment, external commercial borrowing and overseas remittances, in consultation with the government.
- It manages India's foreign exchange reserves, which it holds and deploys as part of its balance sheet.
Recent example: on 8 June 2026 the RBI opened a USD/INR swap facility for fresh FCNR(B) deposits of three to five years, and the scheme also covers external commercial borrowings (ECBs) and overseas foreign currency borrowings (OFCBs), for which it stays open until 31 December 2026. By 31 August 2026, when the FCNR(B) window closed, banks had reported provisional inflows of about US$136.4 billion, including US$127.2 billion of FCNR(B) deposits. These inflows helped lift reserves to a record US$785.7 billion on 4 September 2026, before they fell back to US$721.0 billion by 16 October.
4. Issuer of currency
The RBI "issues and exchanges or destroys currency notes and coins not fit for circulation". Its stated objective is to give the public an adequate supply of currency notes and coins of good quality.
The legal basis
- Section 22, RBI Act: the RBI has the sole right to issue bank notes in India.
- Section 24: notes may be issued in denominations up to ₹10,000.
- Section 25: the design, form and material of notes are approved by the Central Government on the recommendation of the RBI's Central Board.
- Section 26: every bank note is legal tender and is guaranteed by the Central Government. The "I promise to pay the bearer" clause printed on each note records the RBI's obligation, as issuer, to pay its value. Section 26(2) lets the government, on the Central Board's recommendation, declare a series of notes no longer legal tender. This was the provision used for the demonetisation of ₹500 and ₹1,000 notes from midnight on 8 November 2016.
- Coins and ₹1 notes are issued by the Government of India under the Coinage Act, 2011. The RBI only puts coins into circulation, under Section 38 of the RBI Act, as the government's agent. The ₹1 note is likewise a Government of India note, not an RBI bank note.
From press to pocket
The RBI, in consultation with the government, estimates how many notes of each denomination will be needed in a year and places orders with the four presses:
- Nashik (Maharashtra) and Dewas (Madhya Pradesh), owned by the government's Security Printing and Minting Corporation of India Ltd (SPMCIL);
- Mysuru (Karnataka) and Salboni (West Bengal), owned by Bharatiya Reserve Bank Note Mudran Pvt Ltd (BRBNMPL), a wholly owned subsidiary of the RBI.
Coins are minted at four SPMCIL mints: Mumbai, Hyderabad, Kolkata and Noida.
Fresh notes go to the RBI's 19 Issue Offices (and directly from the presses to some currency chests). From there they go to currency chests, storehouses run by scheduled banks on the RBI's behalf, of which there were 2,599 at end-March 2026 (SBI alone ran 1,298), along with 2,119 small coin depots. The chests supply bank branches, and branches supply the public. Coins travel from the mints to the RBI's four mint-linked offices, then through other RBI offices to currency chests and small coin depots. Under its Clean Note Policy, the RBI re-issues only notes fit for circulation and destroys soiled ones.
Recent example: the ₹2,000 note, withdrawn from circulation on 19 May 2023, shows how withdrawal differs from demonetisation. By 30 April 2026, 98.47% of the ₹3.56 lakh crore in circulation had come back, leaving ₹5,451 crore outstanding, yet the RBI says the notes remain legal tender and can still be exchanged or deposited at its 19 Issue Offices.
5. Developmental role
The RBI describes this function as performing "a wide range of promotional functions to support national objectives". This is what distinguishes it from many advanced-economy central banks.
- Priority sector lending (PSL): under the RBI's Priority Sector Lending – Targets and Classification Directions, 2025, domestic commercial banks and foreign banks with 20 or more branches must lend 40% of adjusted net bank credit (ANBC) or of credit equivalent of off-balance sheet exposure, whichever is higher, to priority sectors. Within that there are sub-targets, including 18% for agriculture and 7.5% for micro-enterprises.
- Financial inclusion and literacy: the RBI coordinates the National Strategy for Financial Inclusion (NSFI) 2025-30 and the National Strategy for Financial Education.
- Lead Bank Scheme: State Level Bankers' Committees, District Consultative Committees and Block Level Bankers' Committees coordinate credit at each level.
- Credit to MSMEs and agriculture, including relief measures in areas hit by natural calamities.
- Institution building: the RBI helped create many of India's development institutions over the decades, as Part 1 describes. The Deposit Insurance and Credit Guarantee Corporation (DICGC), which insures bank deposits, is a wholly owned subsidiary of the RBI.
Recent example: the RBI's Financial Inclusion Index for March 2026, released on 16 July 2026, rose to 70.0 from 67.0 a year earlier, mainly because more people used financial services rather than simply having access to them.
6. Banker and debt manager to the government
The RBI is the government's bank. Under Section 20, it has an obligation, and under Section 21 a right, to accept money for the Central Government, make payments on its behalf, carry out its exchange, remittance and banking operations, and manage the public debt. The Central Government must deposit its cash balances with the RBI interest-free.
For state governments, the arrangement is by agreement under Section 21A. The RBI is banker to all state governments (including the Union Territories of Puducherry and Jammu and Kashmir) except Sikkim, for which it has only a limited agreement to manage public debt.
What the RBI does as banker to government:
- receives and makes payments for government departments, using agency banks where it has no office, and compiles final government accounts at its Central Accounts Section in Nagpur;
- gives Ways and Means Advances (WMA), short-term interest-bearing advances to cover temporary mismatches between receipts and payments. Section 17(5) allows such advances, repayable within three months;
- floats and manages government loans, raising market borrowings through auctions of government securities and treasury bills;
- invests the governments' surplus cash balances;
- advises the government on monetary and banking matters when asked.
Recent example: on 25 September 2026 the RBI, in consultation with the government, set the Centre's WMA limit for October 2026 to March 2027 at ₹50,000 crore, against ₹2,50,000 crore for April to September 2026. WMA is charged at the repo rate and overdraft at two percentage points above it, and the RBI may trigger fresh market loans once the government uses 75% of the limit.
7. Banker to banks and lender of last resort
Just as people keep accounts with banks, banks keep current accounts with the RBI. They use these accounts to hold the CRR (Section 42) and to settle payments with each other. The RBI also provides short-term loans to banks, for example under the LAF and MSF and against eligible securities under Section 17.
Recent example: the CRR was cut in four steps to 3% of net demand and time liabilities, the last step taking effect from the fortnight beginning 29 November 2025. On 9 October 2026, with surplus liquidity in the system, the RBI left that ratio unchanged but raised the share of it that banks must hold on every day of the fortnight from 90% to 99%, from 16 October 2026.
Lender of last resort
The RBI describes itself as the "lender of last resort". It can rescue a bank that is solvent but faces temporary liquidity problems by lending to it when nobody else will. Its stated purpose is to protect depositors and prevent a bank failure from spreading. An RBI publication links this role to Section 18 of the RBI Act, which allows special lending "in special occasions" beyond the normal limits of Section 17.
The RBI's 2020-21 Annual Report sets out the terms:
- support is for stressed but solvent individual banks;
- the bank must first exhaust market sources and the RBI's regular windows, such as the LAF and MSF;
- lending is against specified collateral, preferably government securities, with haircuts;
- it is usually for up to 90 days, at a penalty rate above the repo rate.
This follows the classic Bagehot principle: lend freely to solvent institutions, against good collateral, at a high rate. Weak banks are usually restructured or merged first. Deposit insurance through the DICGC is the third line of defence.
8. Regulator and supervisor of payment and settlement systems
The Payment and Settlement Systems Act, 2007 makes the RBI the authority for payment systems. No one other than the RBI may start or operate a payment system in India without the RBI's authorisation. The RBI's stated objective is to introduce and upgrade safe and efficient modes of payment to meet the requirements of the public.
The policy body is the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), a sub-committee of the Central Board that the RBI calls "the highest policy making body on payment systems in the country". The Department of Payment and Settlement Systems acts as its secretariat.
The RBI is both regulator and operator:
- RTGS (Real Time Gross Settlement): owned and run by the RBI, for large-value payments settled one by one in real time. The minimum is ₹2 lakh, with no upper limit. It has run 24x7 since 14 December 2020.
- NEFT (National Electronic Funds Transfer): owned and run by the RBI, settling in half-hourly batches. It has run 24x7 since 16 December 2019.
- UPI (Unified Payments Interface): launched on 11 April 2016. It is operated by the National Payments Corporation of India (NPCI), which is authorised under the PSS Act, under the RBI's regulatory oversight. Remember the distinction: the RBI runs RTGS and NEFT, while NPCI runs UPI (and IMPS and RuPay).
UPI's growth shows the scale of the system the RBI now oversees. According to Ministry of Finance figures based on NPCI data, annual UPI transactions rose from 4,595.61 crore in 2021-22 to 24,161.69 crore in 2025-26, worth ₹314.23 lakh crore in the latest year. By June 2026, 55.49 crore users had been onboarded.
The RBI sets its direction for payments through vision documents. The latest, Payments Vision 2028, was released on 27 March 2026 under the theme "Shaping India's Payment Frontier". It focuses on user trust, safeguards against fraud and cross-border payments.
Recent example: on 24 June 2026 the RBI issued amendment directions on limiting customer liability in digital transactions. They cover more kinds of fraudulent electronic banking transactions, shorten the time banks take to deal with fraud complaints and add a compensation mechanism for small-value frauds, and they apply from 1 January 2027.
9. Related functions
Consumer protection and the Ombudsman
The RBI's Consumer Education and Protection Department runs its grievance redress system. The Banking Ombudsman Scheme began in 1995. On 12 November 2021, three separate schemes (for banks, NBFCs and digital transactions) were merged into the Reserve Bank – Integrated Ombudsman Scheme (RB-IOS), 2021, under the "One Nation, One Ombudsman" idea.
That scheme has since been replaced. The RBI issued the Reserve Bank – Integrated Ombudsman Scheme, 2026 on 16 January 2026, and it took effect on 1 July 2026. Complaints received before 1 July 2026 are still handled under the 2021 scheme. RB-IOS 2026 is a free, non-adversarial alternative to the courts for complaints about deficient service by banks, eligible NBFCs and other covered entities. A customer must first complain to the bank or entity before approaching the Ombudsman, and the Ombudsman can award compensation of up to ₹3 lakh for loss of time, expenses, harassment or mental anguish.
Research and statistics
The RBI's Department of Economic and Policy Research and Department of Statistics and Information Management produce research and data for policy and for the public. The RBI also conducts forward-looking surveys (for example on consumer confidence and inflation expectations) and publishes the Annual Report, the Monetary Policy Report, the Financial Stability Report, the monthly Bulletin, and the Database on Indian Economy (DBIE).
Other roles
Under Chapter III-D of the RBI Act, the RBI also regulates dealings in money market instruments, government securities, foreign exchange and their derivatives, and it advises the government on monetary and banking matters when asked.
Key facts at a glance
| Founding law | Reserve Bank of India Act, 1934 |
| Governance | Central Board of Directors (Section 7 and Section 8, RBI Act) |
| Central Board | Governor, up to 4 Deputy Governors, 4 Local Board directors, 10 nominated directors, 2 government officials |
| Board meetings | At least 6 a year and at least once a quarter (Section 13) |
| Government directions | Section 7(1), only after consulting the Governor |
| Inflation target | 4% CPI, band 2% to 6% (Section 45ZA) |
| Current target period | 1 April 2026 to 31 March 2031 (notified 25 March 2026) |
| Failure | Outside the band for 3 consecutive quarters; report under Section 45ZN |
| MPC | 6 members, quorum 4, Governor has casting vote (Sections 45ZB and 45ZI) |
| Repo rate (as of 24 October 2026) | 5.50% (raised on 7 October 2026) |
| Sole right to issue notes | Section 22, RBI Act |
| Coins and ₹1 notes | Issued by Government of India (Coinage Act, 2011) |
| Note presses | Nashik and Dewas (SPMCIL); Mysuru and Salboni (BRBNMPL) |
| Bank licensing | Section 22, Banking Regulation Act, 1949 |
| Directions to banks | Section 35A, Banking Regulation Act, 1949 |
| Forex law | FEMA, 1999, in force from 1 June 2000 |
| Payments law | Payment and Settlement Systems Act, 2007; policy body BPSS |
| Banker to states | By agreement under Section 21A; all states except Sikkim |
| PSL target | 40% of ANBC for domestic commercial banks |
| Ombudsman | RB-IOS 2026, in force from 1 July 2026 |
Exam corner: what to remember
- The RBI's own list has seven headings: monetary authority, financial system regulator, forex manager, currency issuer, developmental role, payment systems regulator, and related functions (banker to government and to banks).
- Section 7 covers both board management and government directions. Directions can be given only after consulting the Governor.
- 45ZA sets the target, 45ZB creates the MPC, 45ZI covers meetings, 45ZL covers minutes (published on day 14), 45ZM requires the Monetary Policy Report and 45ZN covers failure.
- The 4% ± 2% target was renewed on 25 March 2026 for April 2026 to March 2031. Do not write "valid till 2026".
- The MPC has 3 RBI members and 3 external members. External members serve four years and cannot be reappointed. The Governor has the casting vote.
- RBI notes, government coins. The ₹1 note is a government note. Section 26(2) is the demonetisation power.
- The RBI runs RTGS and NEFT; NPCI runs UPI. The RTGS minimum is ₹2 lakh.
- FEMA replaced FERA from 1 June 2000. The RBI administers FEMA through authorised persons (Section 10).
- Lender of last resort means helping a solvent but illiquid bank, against collateral, at a penal rate, for a short period.
- The Banking Ombudsman began in 1995, RB-IOS 2021 started on 12 November 2021, and RB-IOS 2026 took effect on 1 July 2026.
For exam-specific syllabus and pattern details, see our pages for RBI Grade B, SBI PO and IBPS PO.
Test yourself
Under which section of the RBI Act can the Central Government give directions to the RBI after consulting the Governor?
Show answer
Answer: (a) Section 7(1) allows directions in the public interest, but only after consultation with the Governor.
The inflation target notified on 25 March 2026 applies to which period?
Show answer
Answer: (c) The second review kept 4% ± 2% for 1 April 2026 to 31 March 2031.
Which of these is NOT a member of the Monetary Policy Committee?
Show answer
Answer: (c) The other three MPC members are external experts appointed by the government, not government officials.
Who issues coins in India?
Show answer
Answer: (b) Coins are issued by the Government of India under the Coinage Act, 2011, and the RBI only distributes them.
Which payment system is operated by the RBI itself?
Show answer
Answer: (c) The RBI owns and operates RTGS and NEFT, while NPCI operates UPI, IMPS and RuPay.
FEMA, 1999 came into force on
Show answer
Answer: (b) FEMA replaced FERA, 1973 with effect from 1 June 2000.
Lender-of-last-resort support from the RBI is meant for a bank that is
Show answer
Answer: (b) The RBI lends to solvent but illiquid banks, against collateral and at a penal rate, after they have exhausted other sources.
Which section of the Banking Regulation Act, 1949 requires a company to hold an RBI licence to carry on banking business in India?
Show answer
Answer: (b) Section 22 deals with the licensing of banking companies, while Section 35A gives the RBI power to issue directions.
With effect from 16 October 2026, banks must maintain at least what share of their required CRR on every day of the reporting fortnight?
Show answer
Answer: (c) On 9 October 2026 the RBI raised the daily minimum from 90% to 99% under Section 42(1) of the RBI Act, while leaving the CRR itself at 3%.
In May 2026 the RBI approved a record surplus transfer of ₹2,86,588.46 crore to the Central Government. Under which section of the RBI Act is the surplus paid to the government?
Show answer
Answer: (d) Section 47 requires the balance of the RBI's profits, after provisions, to be paid to the Central Government. The 2025-26 transfer was approved at the Central Board's 623rd meeting on 22 May 2026.
Further reading
- Report of the Expert Committee to Revise and Strengthen the Monetary Policy Framework (Urjit Patel Committee), January 2014: the report that recommended CPI inflation as India's nominal anchor and a monetary policy committee, which led to the 2016 framework.
- Review of Monetary Policy Framework: A Discussion Paper (RBI, August 2025): the RBI's own assessment of the first decade of inflation targeting, written for the 2026 review.
- RBI's Functions and Working (Reserve Bank Staff College): a detailed guide to every RBI department and function, especially useful for RBI Grade B Phase II.
- Monetary Policy Report (RBI, half-yearly): the statutory report under Section 45ZM, showing how the RBI reads inflation and growth.
- RBI Annual Report: a year-by-year account of every function, from currency management to supervision, and a good source of current-affairs facts.
- Financial Stability Report (RBI, half-yearly): the RBI's assessment of risks to banks and the wider financial system.
- Payments Vision 2028 (RBI, March 2026): where the RBI wants payment systems to go next, and a summary of earlier vision documents.
- Duvvuri Subbarao, Who Moved My Interest Rate? (Penguin, 2016): a former Governor's account of running the RBI from 2008 to 2013, including its relationship with the government.
Sources
- RBI, About Us (main functions, Central Board, BFS, Acts administered): the official list of functions and their objectives, Central Board composition and BFS (November 1994) (accessed 24 October 2026)
- Reserve Bank of India Act, 1934 (RBI publication): Preamble; Sections 7, 8, 9, 13, 17, 18, 20, 21, 21A, 22, 24, 26, 42, 45L, 45U–45X, 45ZA–45ZN and 47 (accessed 24 October 2026)
- RBI, Monetary Policy overview: inflation target notifications of 2016, 2021 and 25 March 2026; period to 31 March 2031; failure definition (accessed 24 October 2026)
- Speech by Dr Poonam Gupta, Deputy Governor, 5 May 2026: Gazette S.O. 1580(E); 8.1% versus 4.6% average inflation; breaches in 2020-21 and 2022-23; MPC casting vote never used (accessed 24 October 2026)
- RBI, Governor's Statement, 7 October 2026: repo rate 5.50%, SDF 5.25%, MSF and Bank Rate 5.75%, stance (accessed 24 October 2026)
- PIB, Ministry of Finance, 22 July 2025: average CPI inflation of 5.4% in 2023-24 and 4.6% in 2024-25 (accessed 24 October 2026)
- PIB factsheet, April 2025: CPI inflation of 6.7% in 2022-23, 5.4% in 2023-24 and 4.6% in 2024-25 (accessed 24 October 2026)
- RBI, Indian Currency FAQ (updated 15 April 2025): presses, mints, Section 38, currency chests (2,691), Issue Offices (19), distribution chain, legal tender (accessed 24 October 2026)
- RBI, Currency Management overview: RBI and government roles in currency, press ownership, coins issued by the government (accessed 24 October 2026)
- RBI, Banker to Government overview: Sections 20 and 21, states by agreement, Sikkim exception, WMA, debt management (accessed 24 October 2026)
- RBI, Banker to Banks overview: bank current accounts, lender of last resort for solvent banks (accessed 24 October 2026)
- RBI Annual Report 2020-21, Chapter III, Box III.1: lender-of-last-resort conditions (collateral, haircuts, up to 90 days, penalty rate), DICGC as subsidiary (accessed 24 October 2026)
- RBI, Financial Inclusion and Development overview: priority sector, NSFI 2025-30, Lead Bank Scheme (accessed 24 October 2026)
- RBI, Co-operative Banks overview: BR Act extended to co-operatives in 1966, dual control, PACS outside RBI regulation (accessed 24 October 2026)
- RBI Master Directions, Priority Sector Lending – Targets and Classification, 2025: 40% overall target and sub-targets (accessed 24 October 2026)
- Banking Regulation Act, 1949 (RBI publication): Sections 22, 24, 35 and 35A (accessed 24 October 2026)
- RBI, Payment and Settlement Systems: BPSS role, PSS Act 2007 (accessed 24 October 2026)
- RBI, RTGS FAQ: ₹2 lakh minimum, 24x7 from 14 December 2020 (accessed 24 October 2026)
- RBI press release, 1 March 2024: NEFT 24x7 from 16 December 2019 and RTGS from 14 December 2020, both managed by the RBI (accessed 24 October 2026)
- PIB, Ministry of Finance, 20 July 2026: UPI volumes and values from 2021-22 to 2025-26, 55.49 crore users, NPCI authorised under the PSS Act (accessed 24 October 2026)
- PIB, 30 April 2026: UPI launched on 11 April 2016 by NPCI under RBI oversight (accessed 24 October 2026)
- RBI, Payments Vision 2028: release date and theme (accessed 24 October 2026)
- RBI press release, 12 November 2021: launch of RB-IOS 2021 merging three schemes (accessed 24 October 2026)
- RBI press release, 16 January 2026: issue of RB-IOS 2026 (accessed 24 October 2026)
- RBI, RB-IOS 2026 FAQ: in force from 1 July 2026, replaces the 2021 scheme, complaint first to the entity, ₹3 lakh compensation (accessed 24 October 2026)
- RBI, Consumer Education and Protection overview: CEPD, Banking Ombudsman Scheme from 1995 (accessed 24 October 2026)
- RBI, Economic Research overview: DEPR and DSIM, research and statistics role (accessed 24 October 2026)
- RBI, Weekly Statistical Supplement, 23 October 2026: forex reserves of US$721,016 million on 16 October 2026, down US$5,011 million in the week (accessed 24 October 2026)
- RBI, Weekly Statistical Supplement, 11 September 2026: record forex reserves of US$785,706 million on 4 September 2026 (accessed 24 October 2026)
- RBI notification, 9 October 2026 (RBI/2026-27/290): daily minimum CRR raised from 90% to 99% under Section 42(1), from the fortnight beginning 16 October 2026 (accessed 24 October 2026)
- Business Standard, 9 October 2026: context for the daily CRR change, with the CRR itself unchanged (accessed 24 October 2026)
- RBI notification on maintenance of CRR, June 2025: CRR cut to 3.0% of NDTL in four tranches, the last from the fortnight beginning 29 November 2025 (accessed 24 October 2026)
- RBI press release, 14 August 2026: ₹59.20 lakh penalty on IndusInd Bank, sections used and inspection findings (accessed 24 October 2026)
- RBI press release, 28 November 2025: 244 consolidated Master Directions for 11 types of regulated entities; 9,445 circulars repealed or withdrawn (accessed 24 October 2026)
- RBI press release, 16 July 2026: FI-Index of 70.0 for March 2026 against 67.0 for March 2025; index first published in August 2021 (accessed 24 October 2026)
- RBI press release, 24 June 2026: amendment directions on limiting customer liability in digital transactions, in force from 1 January 2027 (accessed 24 October 2026)
- RBI press release, 2 September 2026: provisional inflows under the FCNR(B), ECB and OFCB swap facility to 31 August 2026; FCNR(B) window closed on 31 August (accessed 24 October 2026)
- RBI FAQ, Swap facility for FCNR(B) deposits, ECBs and OFCBs: terms of the swap facility introduced on 8 June 2026 (accessed 24 October 2026)
- RBI press release, 22 May 2026: 623rd Central Board meeting; surplus transfer of ₹2,86,588.46 crore for 2025-26; CRB at 6.5% (accessed 24 October 2026)
- RBI press release, 25 September 2026: WMA limit of ₹50,000 crore for October 2026 to March 2027, interest terms and 75% trigger (accessed 24 October 2026)
- Business Today, 29 May 2026: counterfeit note figures for 2025-26 from the RBI Annual Report (accessed 24 October 2026)
- RBI Annual Report 2025-26: released 29 May 2026; source of the counterfeit data (accessed 24 October 2026)
- Outlook Business, 2 May 2026: 98.47% of ₹2,000 notes returned and ₹5,451 crore outstanding on 30 April 2026; notes remain legal tender (accessed 24 October 2026)