The Reserve Bank of India is the Central Bank of the country and which has been entrusted with various functions and one of its principal functions is the supervision and control of all the banks and related activities. It was constituted under the Reserve Bank of India Act, 1934 to regulate to issue of bank notes and the keeping of reserves with a view to achieving the goals of monetary stability and to operate the currency and credit system of the nation. Thus the salient functions of the Reserve Bank of India are to issue currency notes; to act as banker to the government; to act as banker to the other banks; to control and supervise other banks; to control and manage foreign exchange and to control money and credit in the country.

 

It is clear from the above discussion that the relationship of the Reserve Bank of India with other commercial banks is very intimate. This relationship is managed through the instrumentality of two important legislations viz., The Reserve Bank of India Act,1934 and the Banking Regulation Act, 1949.

 

Towards the end of supervision and control of the banking activities, Section 22 of the Reserve Bank of India Act has empowered it to be the sole authority to issue licence to carry on the banking business in India. The prior permission of the Reserve Bank of India is necessary to be obtain for opening new branches in India or change the location of the existing place of business in India or outside .

 

Similarly the above-mentioned Act also empowers the RBI to inspect any banking company and its books of accounts at its own initiative or at the direction of the Central Government. And on the basis of the inspection report, if the Central Government is of the opinion that the affairs of the banking company are being conducted to the detriment of the interest of the depositors, it may prohibit the bank concerned form receiving fresh deposits or direct the Reserve Bank of India to apply for the winding up of the banking company.

 

The Reserve Bank of India has been authorized under the Act to issue directions to the banks in the public interest or in the interest of the banking policy to prevent the affairs of the banking company from being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interest of the banking company.

 

The provisions of Section 36 of the Act confer a very significant power on the Reserve Bank of India which is the power of removal. In terms of this Section it can remove from office any chairman, director, chief executive officer or employee of a bank if it considers it necessary and desirable. It is also necessary to obtain the prior approval for appointment, reappointment, termination of a chairman, managing director, manager or chief executive officer.


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