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History of RBI: Hilton Young Commission to nationalisation (1926–1949)
Understand
Before 1935 India had no central bank. The Government issued currency notes, and the Imperial Bank did some government banking, but no single institution controlled money and credit. In 1926 the Royal Commission on Indian Currency and Finance, better known as the Hilton Young Commission, recommended a separate central bank so that currency and credit would be managed together and kept apart from day-to-day government finances. After a first Bill (1927) was dropped over disputes about ownership and the board, the Reserve Bank of India Act, 1934 (Act II of 1934) was passed, and RBI began operations on 1 April 1935. It started as a shareholders' bank (owned by private shareholders) with a share capital of ₹5 crore. Its Central Office was first in Calcutta (now Kolkata) and moved permanently to Bombay (now Mumbai) in 1937; the Governor sits at the Central Office. RBI also served neighbouring areas: it acted as banker to the Government of Burma after Burma separated from India in 1937 and remained Burma's central bank until April 1947, and it was Pakistan's central bank until 30 June 1948, after which the State Bank of Pakistan took over. After Independence, the Reserve Bank (Transfer to Public Ownership) Act, 1948 nationalised RBI from 1 January 1949. Since then it has been fully owned by the Government of India, with its capital still fixed at ₹5 crore (Section 4).
Rule
1926: Hilton Young Commission (Royal Commission on Indian Currency and Finance) recommended a central bank.
RBI Act, 1934 (Act II of 1934); RBI began operations on 1 April 1935.
Originally a shareholders' bank; paid-up capital ₹5 crore — Section 4 still fixes the capital at ₹5 crore.
Central Office: Calcutta at first, moved permanently to Bombay (Mumbai) in 1937.
Burma: RBI banker to Burma's Government from 1937, its central bank until April 1947. Pakistan: until 30 June 1948.
Nationalised on 1 January 1949 under the Reserve Bank (Transfer to Public Ownership) Act, 1948.
First Governor: Sir Osborne Smith (1 April 1935). First Indian Governor: Sir C. D. Deshmukh (from 11 August 1943).
Preamble: to regulate the issue of bank notes and keeping of reserves to secure monetary stability, and to operate the currency and credit system to the country's advantage; it now also refers to a modern monetary policy framework.
| Date | Event |
|---|---|
| 1926 | Hilton Young Commission recommends a central bank |
| 1934 | RBI Act passed (Act II of 1934) |
| 1 April 1935 | RBI starts as a shareholders' bank; Sir Osborne Smith first Governor |
| 1937 | Central Office moves permanently from Calcutta to Bombay |
| 11 August 1943 | C. D. Deshmukh becomes the first Indian Governor |
| 30 June 1948 | RBI ceases to be Pakistan's central bank |
| 1 January 1949 | RBI nationalised |
Common mistake
The Act is of 1934, but RBI started functioning on 1 April 1935 — do not mix the two years.
RBI was nationalised in 1949, twenty years before the 1969 bank nationalisation; the two events are unrelated.
The first Governor was Sir Osborne Smith; C. D. Deshmukh was the first INDIAN Governor (the third Governor).
RBI's first Central Office was in Calcutta, not Bombay; the shift happened in 1937.