At a glance
The Reserve Bank of India Act, 1934 set up the RBI and still defines what it can do. Most banking-awareness questions about the RBI's powers point to a specific section of this Act: who can give it directions, what business it may do, its monopoly on notes, the CRR, NBFC registration and the Monetary Policy Committee. The Act's Second Schedule lists the "scheduled banks".
Key facts
- Enacted: 1934 (Act No. 2 of 1934); RBI began operations on 1 April 1935
- Basis: recommendations of the Hilton Young Commission (Royal Commission on Indian Currency and Finance, 1926)
- First HQ: Calcutta; moved to Bombay (Mumbai) in 1937
- Nationalised: 1 January 1949
- Section 3: establishes the RBI; Section 4: its capital (₹5 crore, wholly owned by the Centre)
- Section 7: Centre may give directions to the RBI in the public interest after consulting the Governor; the Central Board runs the RBI's affairs
- Section 17: the business the RBI may carry on (deposits, loans to banks, dealing in government securities, foreign exchange, repo)
- Section 22: sole right to issue bank notes in India
- Section 42: Cash Reserve Ratio of scheduled banks; CRR now 3% of NDTL
- Section 45-IA: NBFCs must hold a Certificate of Registration from the RBI
- Sections 45ZA and 45ZB: inflation target set by the Centre, and the six-member Monetary Policy Committee
- Governor (Oct 2026): Sanjay Malhotra; policy repo rate 5.50% (after the 7 October 2026 hike)
How it works
| Section | What it covers | Exam hook |
|---|---|---|
| 7 | Directions by Centre, management by Central Board | The "RBI autonomy" section |
| 8 | Composition of the Central Board | Governor, up to four Deputy Governors, directors |
| 17 | Business the RBI may transact | Basis for LAF, OMOs, loans to banks |
| 18 | Emergency lending beyond Section 17 | Lender of last resort |
| 20–21 | Banker to the Central Government | 21A: banker to states by agreement |
| 22 | Monopoly on issue of bank notes | Coins are issued by the Government |
| 24 | Denominations of notes | Highest allowed: ₹10,000 |
| 26 | Legal tender character of notes | Demonetisation uses 26(2) |
| 42 | CRR | No legal floor or ceiling since 2006 |
| 45-IA | NBFC registration | Cancellation under 45-IA(6) |
| 45ZA–45ZO | Inflation target, MPC, meetings, failure report | 45ZB = MPC; 45ZN = failure to meet target |
| 47 | Surplus profits paid to the Centre | Basis of the RBI dividend |
Second Schedule and scheduled banks. Under Section 42(6) the RBI includes a bank in the Second Schedule if its paid-up capital and reserves are at least ₹5 lakh and its affairs are not run against depositors' interests. Scheduled banks keep CRR with the RBI and can borrow from it. The RBI can exclude a bank that fails these tests, goes into liquidation or stops banking business.
CRR maintenance. Banks must meet CRR on a fortnightly average, but also keep a minimum share of it on every single day. That daily floor is set by notification under Section 42(1).
Recent developments
- 16 Oct 2026: The daily minimum CRR balance rose from 90% to 99% of the requirement, from the fortnight beginning this date (notification under Section 42(1) dated 9 October). The CRR rate stays at 3%. The RBI last used a 99% daily floor in July 2013.
- 9 Oct 2026: The RBI cancelled the registration of 23 NBFCs under Section 45-IA(6): 13 cancelled by the RBI and 10 after surrender (including Vivriti Capital and HCL Corporation).
- 7 Oct 2026: The RBI announced that Paytm Payments Bank had been excluded from the Second Schedule (notification dated 31 July 2026, published in the Gazette on 7 September 2026).
Exam traps
- CRR is under Section 42 of the RBI Act; SLR is under Section 24 of the Banking Regulation Act, 1949. Don't swap them.
- Section 22 gives the RBI the monopoly on notes, not coins; coins are minted by the Government of India.
- The MPC is created by Section 45ZB; the inflation target is under 45ZA. Both were added in 2016.
- "Scheduled" refers to the Second Schedule of the RBI Act, not to any schedule of the Banking Regulation Act.
- The RBI was set up in 1935 under a 1934 Act and nationalised in 1949.
Quick check
- Q: Under which section of the RBI Act do banks maintain CRR? A: Section 42.
- Q: Which section requires NBFCs to register with the RBI? A: Section 45-IA.
- Q: What is the minimum paid-up capital and reserves for inclusion in the Second Schedule? A: ₹5 lakh.
In the news
Every time this topic has appeared in our current affairs, newest first:
- Week of 15–21 October 2026Banks must now keep 99% of required CRR every day, from 16 October
- Week of 8–14 October 2026RBI raises daily minimum CRR maintenance from 90% to 99%
- Week of 8–14 October 2026RBI cancels registration of 23 NBFCs
- Week of 1–7 October 2026Paytm Payments Bank removed from the Second Schedule of the RBI Act