The Founding of the Reserve Bank of India

How and why the Reserve Bank of India was created in 1935, its early role under British rule, and its nationalisation after independence.

The Reserve Bank of India (RBI) began operations on 1 April 1935, under the Reserve Bank of India Act, 1934.

Why it was created

Before the RBI, currency and banking functions were split:

The government issued currency.
The Imperial Bank of India acted partly as a government banker.

The Hilton Young Commission (1926) recommended a separate central bank to manage currency and credit.

Early years

The RBI was initially privately owned by shareholders.
Its headquarters were first in Calcutta, moving to Bombay in 1937.
It issued currency, managed the government’s accounts and regulated banks.
The first governor was Sir Osborne Smith.

During World War Two

The RBI financed massive war spending, leading to inflation in India.

After independence

The RBI was nationalised on 1 January 1949.
It took on a major role in planning and development, supporting agriculture credit and industrial finance.
It created institutions such as IDBI, UTI and NABARD (earlier functions later transferred).

Modern role

Today, the RBI:

Sets monetary policy to target inflation.
Regulates banks and NBFCs.
Manages foreign exchange reserves.
Issues currency.
Oversees payment systems.

The first notes

The RBI issued its first banknotes in 1938, bearing the portrait of King George VI. After independence, the Ashoka pillar and later Mahatma Gandhi appeared on notes.

Thinking the RBI was created after independence

The RBI began operations in 1935 under British rule and was nationalised in 1949.

Key takeaways

The RBI began operations on 1 April 1935 under the RBI Act, 1934.
It was recommended by the Hilton Young Commission in 1926.
It was privately owned at first and nationalised on 1 January 1949.
Today it runs monetary policy, regulates banks and manages reserves.