Decoding the Central Board of the RBI

Note4students

Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Everything about RBI Board of Directors

Mains level: RBI-Govt tussle


News

  • The Central Board of Directors of the RBI has recently been a topic of much discussion in the light of both the recent public tussle with the Finance Ministry and the second anniversary of demonetization.

Why has the RBI Board been in the news?

  1. The RBI Board recently entered the news during the public spat between the central bank and the Finance Ministry.
  2. One of the reasons for the disagreement was the government’s alleged threat of invoking Section 7 of the RBI Act.
  3. Section 7 basically empowers the government to supersede the RBI Board and issue directions to the central bank if they are considered to be “necessary in public interest”.

RBI Board

  1. The RBI Board is a body comprising officials from the central bank and the Government of India, including officials nominated by the government.
  2. According to the RBI, the general superintendence and direction of the affairs and business of the RBI is entrusted to the Central Board.
  3. The Board exercises all powers and does all acts and things that are exercised by the RBI.
  4. The Board is also to recommend to the government the design, form and material of bank notes and also when and where they can serve as legal tender.

Composition

  1. The Board consists of official directors, who include the Governor and up to four Deputy Governors.
  2. Non-official directors include up to ten directors from various fields and two government officials and one director from each of four local boards of the RBI.
  3. The Governor and Deputy Governors hold office for not more than five years, the ten directors nominated by the government hold office for four years.
  4. The government officials are to hold a term on the RBI Board as long as the government sees fit.
  5. According to the RBI Act, the director of the RBI Board cannot:
  • be a salaried government official (except for the ones specifically nominated by the government)
  • be adjudicated as insolvent or have suspended payments to creditors
  • be an officer or employee of any bank (again, this does not include the government nominee), or, ,
  • if found lunatic or becomes of unsound mind

Working

  1. The Governor has to call a Board meeting at least six times in a year, and at least once each quarter.
  2. A meeting can be called if a minimum of four Directors ask the Governor to call a meeting.
  3. The Governor or, if for any reason unable to attend, the Deputy Governor authorised by the him to vote for him, presides the Board meetings.
  4. In the event of split votes, the Governor has a second, or deciding vote.
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