Reserve Bank Of India

The Strategic Aspirations of the Reserve Bank of India

The Reserve Bank of India (RBI) is India’s central bank or the “bank of the bankers”. It was established on 1st April, 1935 in accordance with the provisions of The Reserve Bank of India Act, 1934. The Central Office of the RBI, initially set up a Kolkata, is at Mumbai. The RBI is fully owned by the Government of India.

The history of the RBI is closely aligned with the economic and financial history of India. Most central banks around the world were established around the beginning of the 20^th century. The Bank was established on the basis of the Hilton Young Commission. It began its operations by taking over from the Government the functions so far being performed by the Controller of Currency and from the Imperial Bank of India, the management of Government accounts and public debt. After independence, RBI gradually strengthened its institution-building capabilities and evolved in terms of functions from central banking to that of development. There have been several attempts at reorganization, restructuring and creation of specialized institutions to cater to emerging needs.

The Preamble of the RBI describes its basic functions like this: “…to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.” The vision states that the RBI “…aims to be a leading central bank with credible, transparent, proactive and contemporaneous policies and seeks to be a catalyst for the emergence of a globally competitive financial system that helps deliver a high quality of life to the people in the country”. The mission states that, “RBI seeks to develop a sound and efficient financial system with monetary stability conducive to balanced and sustained growth of the Indian economy”. The corporate values underlining the mission statement include public interest, integrity, excellence, independence of views and responsiveness and dynamism.

The three areas in which objectives of the RBI can be stated are as below.

1. Monetary policy objectives such as containing inflation and promoting economic growth, management of foreign exchange reserves and making currency available.

2. Objectives set for managing financial sector developments such as supervision of systems and information access and assisting banking and financial institutions to become competitive globally.

3. Organizational development objectives such as development of economic research facilities, creating information system for supporting economic decision-making, financial management and human resource management.

Strategic actions taken to realize the objectives fall under four categories:

1. The thrust area of monetary policy formulation and managing financial sector;

2. Evolving the legal framework to support the thrust area;

3. Customer services for providing support and creation of positive relationship; and

4. Organizational support such as structure, systems, human resource development and adoption of modern technology.

The major functions performed by the RBI are:

· Acting as the monetary authority

· Acting as the regulator and supervisor of the financial system

· Discharging responsibilities as the manager of foreign exchange

· Issue currency

· Play a developmental role

· Related functions such as acting as the banker of the government and schedule banks

The management of the RBI is the responsibility of the central board of directors headed by the governor and consisting of deputy governors and other directors, all of whom are appointed by the government. There are four local boards based at Chennai, Kolkata, Mumbai and New Delhi. The day-to-day management of RBI is in the hands of the executive directors, managers at various levels and the support staff. There are about 22000 employees at RBI, working in 25 departments and training colleges.

The RBI identified its strengths and weaknesses as under.

· Strengths a large body of competent officers and staff; access to key data on the economy; wide organizational network with 22 regional offices; established infrastructure; ability to attract talent; and financial self sufficiency.

· Weaknesses structural rigidity, lack of accountability and slow decision-making; eroded specialist know-how; strong employee unions with rigid industrial relations stance; surplus staff; and weak market intelligence.

Over the years, the RBI has evolved in terms of structure and functions, in response to the roles assigned to it. There have been sweeping changes in the economic, social and political environment. The RBI has had to respond to it even in the absence of a systematic strategic plan. In 1992, the RBI, with the assistance a private consultancy firm, embarked on a massive strategic planning exercise. The objective was to establish a road map to redefine RBI’s role and to review internal organizational and managerial efficacy, address the changing expectations from external stakeholders and reposition the bank in the global context. The strategic planning exercise was buttressed by departmental position papers and documents on various subjects such as technology, human resources and environmental trends. The strategic plan of the RBI emerged with four sections dealing with the statement of mission, objectives and policy, a review of RBI’s strength and weaknesses and strategic actions required with an implementation plan. The strategic plan reiterates anticipation of evolving external environment in the medium-term; revisiting strengths and weaknesses (evaluation of capabilities); and doing away with the outdated mandates for enhancing efficiency in operations in furtherance of best public interest. The results of these efforts are likely to manifest in attaining a visible focus, reinforced proficiency, realization of shared sense of purpose, optimizing resource use and build-up of momentum to achieve goals.

Historically, the RBI adopted the time-tested technique of responding to external environment in a pragmatic manner and making piece-meal changes. The dilemma in adoption of a comprehensive strategic plan was the risk of trading off the flexibility of the pragmatic approach to creating rigidity imposed by a set model of planning.

Question No. 1. Consider the vision and mission statements of the RBI. Comment on the quality of both these statements.

Question No. 2. Should the RBI go for a systematic and comprehensive strategic plan in place of its earlier pragmatic approach of responding to environmental events as and when they occur? Why?