Banking Notes / Banking Awareness / Chapter 2
Chapter 2 of 17

Reserve Bank of India (RBI) – Organization, Functions & Monetary Policy

RBI's structure, core functions, and the Monetary Policy Committee framework — including the current policy rate corridor.

📖 ~11 min read 🏛️ Banking Awareness

Introduction

The Reserve Bank of India (RBI), established in 1935 and headquartered in Mumbai, is India's central bank. It regulates the currency and credit system, supervises banks and NBFCs, and manages monetary policy to balance growth and inflation.

Core Functions of RBI

FunctionDescription
Issuer of CurrencySole authority to issue currency notes in India (coins are issued by the Government of India)
Banker to the GovernmentManages government accounts, public debt, and advises on financial matters
Banker's BankActs as lender of last resort and holds reserves of commercial banks
Regulator of Banking SystemLicenses, supervises, and regulates banks and NBFCs
Manager of Foreign ExchangeAdministers FEMA and manages India's foreign exchange reserves
Monetary AuthorityFormulates and implements monetary policy via the MPC

Monetary Policy Tools

ToolWhat It Does
Repo RateRate at which RBI lends short-term funds to commercial banks
Standing Deposit Facility (SDF)Rate at which banks park excess funds with RBI without collateral — acts as the floor of the policy corridor
Marginal Standing Facility (MSF) / Bank RateRate at which banks borrow overnight funds from RBI against government securities — acts as the ceiling
CRR (Cash Reserve Ratio)% of a bank's deposits that must be kept as reserves with the RBI
SLR (Statutory Liquidity Ratio)% of deposits banks must maintain in liquid assets like cash, gold, or government securities
📌 Current Rates (as per the June 2026 Monetary Policy Committee review): Repo Rate: 5.25% · Standing Deposit Facility (SDF): 5.00% · Marginal Standing Facility (MSF) / Bank Rate: 5.50% · Policy stance: Neutral. The RBI Governor is Sanjay Malhotra. Rates are reviewed bimonthly by the MPC — always verify the latest figure against the RBI's official website closer to your exam date, since these change periodically.

Monetary Policy Committee (MPC)

The MPC is a 6-member committee (3 RBI officials, including the Governor as Chairperson, and 3 external members appointed by the Government) that decides the policy repo rate. It meets bimonthly (6 times a year) with a statutory inflation target of 4% (with a tolerance band of +/-2%).

Q. Which committee is responsible for deciding India's policy repo rate?
The Monetary Policy Committee (MPC), chaired by the RBI Governor, decides the repo rate at its bimonthly meetings.
⚠️ Key Insight: An increase in CRR/SLR reduces the money banks have available to lend (contractionary), while a decrease increases lendable funds (expansionary) — this is opposite to how a repo rate cut works to expand credit, so don't assume all tools move in the same direction for the same goal.
✅ Practice Focus: RBI's six core functions · Repo/SDF/MSF corridor relationships · MPC composition and inflation target · Distinguishing CRR/SLR effects from repo rate effects.

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