THE STRATEGIC ASPIRATIONS OF THE RESERVEBANK OF INDIA

THE STRATEGIC ASPIRATIONS OF THE RESERVEBANK OF INDIA
The Reserve Bank of India (RBI) is India’s central bank or ‘the bank of the bankers’. It was
established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India
Act, 1935. The Central Office of the RBI, initially set up at Kolkata, is at Mumbai. The RBI is
fully owned by the Government of India.
The history of 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 twentieth
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 institutionbuilding capabilities and evolved in terms of functions from central banking to that of
development. There have been several attempts at reorganisation, restructuring and creation
of specialised 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 conductive to balanced and sustained growth of the Indian
economy’. The corporate values of 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 andmaking 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. Organisational 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 realise 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 service for providing support and creationof positive relationship; and
4. Organisational 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 as developmental role
• Related functions such as acting as the banker to the government and scheduled
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 andstaff; access to key data on the
economy; wide organisational network with 22 regional offices; established
infrastructure; ability to attract talent; and financial self sufficiency.
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• 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 role 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 of a private consultancy firm, embarked on a
massive strategic planning exercise. The objective was to establish a roadmap to redefine
RBI’s role and to review internal organisational 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 strengths and weaknesses and strategic actions
required with an implementation plan. The strategic plan reiterates anticipation of evolving
external environment in the medium-term; revisitingstrengths and weaknesses (evaluation of
capabilities); and doing away with the outdated mandates for enhancing efficiency in
operations in furtherance of best public interests. The results of these efforts are likely to
manifest in attaining a visible focus, reinforced proficiency, realisation of shared sense of
purpose, optimising 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 piecemeal 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.
Questions:
1. Consider the vision and mission statements of the Reserve Bank of India. Comment on
the quality of both these statements.
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?

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