GK Update – History of Reserve Bank of India

Questions about the History of Reserve Bank of India have been asked so many times in Competitive Exams.

Brief History of Reserve Bank of India

Prior to the Reserve Bank of India, all the functions of a central bank were being performed by the Imperial Bank of India which was established in 1921 under the Imperial Bank of India Act, 1920.

The Reserve Bank of India was conceptualized after the guidelines presented by Dr. B. R. Ambedkar to the “Royal Commission on Indian Currency & Finance” in 1925. Royal Commission on Indian Currency & Finance also known as Hilton Young Commission was appointed on August 25, 1925.

Hilton Young Commission published its report on August 4, 2026 that recommended the government to create a central bank. Commission members used Dr. Ambedkar’s book “The Problem of the Rupee- Its Problems and Its Solution” as reference.

A bill was introduced in the Legislative Assembly in 1927 to give effect to the recommendation to make a central bank. But it was withdrawn due to lack of agreement among the assembly members.

Later in 1933, a new bill was introduced in the Legislative Assembly after the publication of The White Paper on Indian Constitutional Reforms recommending the creation of Reserve Bank. This bill was passed on March 5, 1934.

The Reserve Bank of India (RBI) is the central bank of India which was established on April 1, 1935 under the Reserve Bank of India Act, 1934 on the basis of the recommendations from the Hilton Young Commission.

Initially RBI was privately owned as it was established with a share capital of Rs. 5 crores which were divided into shares of Rs. 100 each.

Sir Osborne Smith was the first Governor of the RBI.

Sir James Braid Taylor became second Governor of RBI onJuly 1, 1937.

RBI became banker to the Government of Burma in 1937.

Accounting Year of RBI was changed from January-December to July-June on March 11, 1940.

Sir C. D. Deshmukh became first Indian Governor of RBI on August 11, 1943.

RBI stopped acting as banker to the Government of Burma in 1947.

Nationalization of RBI

RBI stopped to function as the central bank for Pakistan with effect from June 30, 1948. State Bank of Pakistan started its operations with effect from July 1, 1949.

The RBI was nationalized w.e.f January 1, 1949 on the basis of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948. All the capital shares of the Bank were transferred to the Central Government of India, However suitable compensation were paid to shareholders. And that’s how RBI became fully owned by the Government of India.

IDBI (Industrial Development Bank of India) was established on July 1, 1964 by the act of Parliament as a subsidiary of the Reserve Bank of India to provide long term industrial finance.

Operations of co-operative banks were brought under the regulation by RBI on March 1, 1966.

Indian Rupee was devalued by 36.5 % on Jun 6, 1966, as the monsoon had failed in the years 1965 and 1966. Production of food grains declined from 89 million tonnes in the year 1964–65 to 72 million tonnes in the year 1965–66. The US Dollar rose to Rs 7.50 which earlier was equivalent to Rs 4.75.

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