Reserve Bank of India (RBI)

The Reserve Bank of India (RBI) is the central bank of India. It issues the Indian rupee, conducts monetary policy, manages the country's foreign exchange reserves, acts as banker to the central and state governments, and regulates banks, non-bank finance companies and payment systems. Its headquarters are in Mumbai.

For payments and fintech companies, the RBI is the principal regulator in one of the world's largest retail payments markets. It licenses payment system operators, sets the rules for wallets, cards and payment aggregators, and administers the exchange control framework that governs money moving into and out of India. Securities markets and insurance are supervised by separate bodies.

The bank was created by the Reserve Bank of India Act of 1934 and began operations on 1 April 1935, following the recommendations of the Hilton Young Commission. It was originally owned by private shareholders and had its central office in Calcutta, which moved to Bombay in 1937. After independence the bank was nationalized, and it has been wholly owned by the Government of India since 1 January 1949.

Its powers over commercial banks were set out in the Banking Regulation Act of 1949. Later laws added to its remit, including the Foreign Exchange Management Act of 1999 and the Payment and Settlement Systems Act of 2007, which made it the regulator of payment systems.

The RBI is governed by a Central Board of Directors appointed by the central government. The board is led by the Governor, who is supported by up to four Deputy Governors, and it includes government nominees and non-official directors. Local boards and regional offices operate across the country.

Interest rate decisions are taken by a six-member Monetary Policy Committee, established in 2016, with three members from the RBI and three appointed by the government. The committee works under a framework of inflation targeting, with a target of 4 percent for consumer price inflation and a tolerance band of two percentage points on either side.

• Monetary authority. It sets the policy repo rate and manages liquidity in the banking system.
• Issuer of currency. It issues banknotes and distributes notes and coins through currency chests held at banks.
• Regulator and supervisor. It licenses and supervises commercial banks, cooperative banks, small finance banks, payments banks and non-banking financial companies, and sets prudential supervision standards for them.
• Manager of foreign exchange. It administers exchange controls under the Foreign Exchange Management Act, authorizes dealers in foreign currency and manages foreign exchange reserves.
• Banker to government and to banks. It manages government borrowing and holds the settlement accounts of banks.

The RBI both operates and regulates payment infrastructure. It runs the real-time gross settlement system for large payments and the National Electronic Funds Transfer system for retail credit transfers, both of which now operate around the clock. Under the 2007 Act, no person may operate a payment system in India without its authorization, and every payment system operator is subject to its directions.

Retail systems are largely run by the National Payments Corporation of India, a not-for-profit company set up in 2008 at the initiative of the RBI and the Indian Banks' Association. It operates the Unified Payments Interface, the Immediate Payment Service and the RuPay card scheme under RBI oversight.

The central bank has issued detailed rules for payment products. These cover prepaid payment instruments such as wallets, the licensing of payment aggregators that collect funds for online merchants, additional authentication for card transactions and for recurring payments, and the replacement of stored card numbers with tokens under its card network tokenisation framework. A 2018 directive requires payment system data relating to India to be stored only in India, a well-known example of data localization. The RBI has also been piloting a central bank digital currency, the digital rupee, in wholesale and retail forms since late 2022.

India is the world's largest recipient of remittances, and the rules for bringing that money in are set by the RBI. Inward personal transfers reach beneficiaries through banks and through two specific arrangements: the Rupee Drawing Arrangement, under which Indian banks tie up with overseas exchange houses, and the Money Transfer Service Scheme, under which overseas operators pay out through Indian agents. Both are limited to inward home remittances and carry conditions on amounts and purposes.

Outward payments by residents are permitted within limits. The Liberalised Remittance Scheme allows resident individuals to send up to a set amount abroad each financial year for permitted purposes. The rupee is convertible for trade and other current transactions but remains restricted for many capital transactions, so foreign payment companies serving Indian customers usually work through authorized dealer banks or locally licensed entities.

The RBI can impose monetary penalties, restrict business, replace management and cancel licenses. In recent years it has used these powers against payment firms as well as banks, for example by barring entities from onboarding new customers until deficiencies in customer identification, data storage or technology controls were fixed. Its circulars and master directions are binding on regulated entities and are published on its website.

• Reserve Bank of India
• National Payments Corporation of India