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The Reserve Bank of India is India's central bank, established on April 1, 1935, under the Reserve Bank of India Act, 1934. It regulates India's monetary policy, issues currency, supervises the banking system, manages foreign exchange reserves, and serves as the banker to the Government of India. The RBI's primary monetary policy mandate is to maintain price stability while supporting economic growth. India's foreign exchange reserves stood at $686.2 billion as of late November 2025, providing approximately 11 months of import cover.
Think of the RBI as the financial system's referee and its backup fund: it sets the rules, ensures solvency, and steps in as the lender of last resort when banks face a liquidity crisis.
The RBI's monetary policy is set by a six-member Monetary Policy Committee established under the RBI Act following a 2016 amendment. Three members come from within the RBI, including the Governor who chairs the committee. Three members are nominated by the Government of India. Decisions require a majority vote, with the Governor having a casting vote in case of a tie.
The committee meets every two months to review economic conditions and set the policy repo rate. The repo rate is the rate at which the RBI lends money overnight to commercial banks against eligible government securities. A rate cut lowers borrowing costs across the economy. A rate hike raises them.
The RBI delivered its most aggressive easing cycle in six years during 2025. Starting from a repo rate of 6.50% in February 2025, the Monetary Policy Committee cut rates four times over the year, reducing the rate to 5.25% by December 2025, a cumulative reduction of 125 basis points. Governor Sanjay Malhotra, who assumed office in late 2024, steered the committee toward a more growth-supportive stance than his predecessor.
The rate cuts were supported by declining inflation. India's retail inflation, measured by the Consumer Price Index, fell to an 8-year low of 1.6% in July 2025, well below the RBI's target of 4% within a band of plus or minus 2%. This gave the MPC the policy space to support economic growth, which registered 7.8% in the first quarter of FY 2025-26.
The RBI uses a range of direct and indirect instruments to implement monetary policy and manage liquidity in the banking system.
The RBI supervises and regulates scheduled commercial banks, cooperative banks, non-banking financial companies, and payment system operators in India. It sets minimum capital adequacy requirements for banks, which must maintain a minimum Tier 1 capital ratio aligned with Basel III standards. The RBI also designates Systemically Important Banks, those whose failure would pose risks to the broader financial system, and subjects them to enhanced supervision and capital requirements.
State Bank of India, HDFC Bank, and ICICI Bank were designated as Domestic Systemically Important Banks by the RBI as of 2025, requiring them to hold additional capital buffers above the standard minimum.
The RBI manages India's foreign exchange reserves and intervenes in the rupee-dollar market to limit excessive volatility. India's reserves at $686.2 billion in late 2025 ranked among the largest in the world and provided a substantial buffer against external shocks. The RBI's foreign exchange policy aims for a stable rupee rather than a fixed peg. India's rupee slipped past 90 rupees per dollar briefly in late 2025 before recovering, prompting the RBI to conduct dollar sales to support the currency.
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