Introduction
Section 2 of the Reserve Bank of India Act, 1934 contains the definitions of important words and expressions used throughout the Act. These definitions ensure that the provisions of the Act are interpreted consistently and avoid confusion while implementing the law.
Many of these definitions have been added or amended over time to reflect changes in India’s financial system, including the introduction of the Monetary Policy Committee (MPC), Digital Currency, and newer financial institutions.
Important Definitions under Section 2
1. Bank [Section 2(aii)]
Meaning
The term “Bank” refers to the Reserve Bank of India (RBI) established under the Reserve Bank of India Act, 1934.
Simple Explanation
Whenever the Act uses the word “Bank”, it simply means the Reserve Bank of India, unless the context indicates otherwise.
2. Bank for International Settlements (BIS) [Section 2(aiii)]
Meaning
The Bank for International Settlements (BIS) is an international financial institution established in 1930 under Swiss law.
Simple Explanation
The BIS is often called the “central bank for central banks.” It promotes international monetary and financial cooperation by providing a platform where central banks, including the RBI, can work together on global financial issues.
3. Bank Note [Section 2(aiv)]
Meaning
A bank note means a currency note issued by the Reserve Bank of India under Section 22, whether it is issued in physical form or digital form.
Simple Explanation
This definition now includes both traditional paper currency and the Central Bank Digital Currency (CBDC), popularly known as the Digital Rupee (e₹).
4. Central Board [Section 2(b)]
Meaning
The Central Board refers to the Central Board of Directors of the RBI.
Simple Explanation
It is the highest decision-making body of the RBI and is responsible for supervising and managing the affairs of the central bank.
5. Consumer Price Index (CPI) [Section 2(bva)]
Meaning
The Consumer Price Index (Combined) published by the Government of India measures changes in the prices of goods and services purchased by consumers.
Simple Explanation
The RBI uses the CPI to measure inflation and formulate monetary policy.
6. Deposit Insurance Corporation [Section 2(bvi)]
Meaning
It refers to the corporation established under the Deposit Insurance Corporation Act, 1961 (now functioning through the Deposit Insurance and Credit Guarantee Corporation (DICGC)).
Simple Explanation
It protects bank depositors by providing insurance on eligible bank deposits up to the prescribed limit if a bank fails.
7. Export-Import Bank of India (Exim Bank) [Section 2(bviiia)]
Meaning
The Export-Import Bank of India (Exim Bank) is a statutory financial institution established under the Export-Import Bank of India Act, 1981.
Simple Explanation
Exim Bank promotes and finances India’s international trade by providing financial assistance to exporters and importers.
8. Foreign Currency and Foreign Exchange [Section 2(bix)]
Meaning
These terms have the meanings assigned under the Foreign Exchange Management Act, 1999 (FEMA).
Simple Explanation
Foreign currency means the currency of another country, while foreign exchange includes foreign currencies, foreign securities, and other international financial instruments used in cross-border transactions.
9. Industrial Finance Corporation of India (IFCI) [Section 2(c)]
Meaning
The Industrial Finance Corporation of India (IFCI) is a development financial institution established to provide long-term finance to industries.
Simple Explanation
It supports industrial growth by providing loans and financial assistance to businesses.
10. Inflation [Section 2(ci)]
Meaning
Inflation refers to the year-on-year percentage change in the monthly Consumer Price Index (CPI).
Simple Explanation
It measures the increase in the general price level of goods and services over time.
11. Inflation Target [Section 2(cii)]
Meaning
The inflation target is the target fixed by the Central Government under Section 45ZA in consultation with the RBI.
Simple Explanation
Currently, the RBI aims to maintain CPI inflation at 4%, with a tolerance band of ±2% (2%–6%).
12. International Development Association (IDA)
The IDA is a member institution of the World Bank Group that provides concessional loans and grants to low-income countries for development projects.
13. International Finance Corporation (IFC)
The IFC, also a member of the World Bank Group, promotes private sector development by providing investment and advisory services.
14. International Monetary Fund (IMF) and International Bank for Reconstruction and Development (IBRD)
The IMF works to promote global monetary cooperation and financial stability, while the IBRD (World Bank) provides financial and technical assistance for development projects.
15. Monetary Policy Committee (MPC) [Section 2(cci)]
Meaning
The Monetary Policy Committee is the statutory committee constituted under Section 45ZB of the RBI Act.
Simple Explanation
The MPC decides the Repo Rate and formulates India’s monetary policy to maintain price stability.
16. National Bank for Agriculture and Rural Development (NABARD)
NABARD is India’s apex development bank for agriculture and rural development, established under the NABARD Act, 1981.
17. National Bank for Financing Infrastructure and Development (NaBFID)
NaBFID is a statutory development finance institution established under the NaBFID Act, 2021 to finance large infrastructure projects in India.
18. Other Development Financial Institution (DFI)
This refers to any development financial institution licensed under the NaBFID Act, 2021.
19. National Housing Bank (NHB)
The National Housing Bank is the apex financial institution for housing finance in India.
20. Policy Rate
The Policy Rate refers to the Repo Rate determined by the RBI under Section 17.
It is the key interest rate used by the RBI to implement monetary policy.
21. Rupee Coin
A rupee coin means any coin that is legal tender in India under the applicable coinage law.
22. Scheduled Bank
A Scheduled Bank is a bank included in the Second Schedule of the RBI Act, 1934 and satisfies the eligibility conditions prescribed by the RBI.
23. Small Industries Development Bank of India (SIDBI)
SIDBI is the principal financial institution responsible for promoting, financing, and developing the Micro, Small and Medium Enterprises (MSME) sector.
24. Sponsor Bank
A Sponsor Bank is a bank that establishes and supports a Regional Rural Bank (RRB) under the Regional Rural Banks Act, 1976.
25. State Bank
The State Bank refers to the State Bank of India (SBI) established under the State Bank of India Act, 1955.
26. State Financial Corporation (SFC)
A State Financial Corporation provides financial assistance to small and medium industries within a State.
27. Unit Trust
The Unit Trust refers to the Unit Trust of India (UTI) established under the Unit Trust of India Act, 1963.
28. Agricultural and Co-operative Banking Terms
Section 2 also adopts the meanings of several terms—such as agricultural operations, co-operative bank, regional rural bank, State co-operative bank, primary agricultural credit society, and related expressions—from the NABARD Act, 1981 and the Banking Regulation Act, 1949. This ensures uniform interpretation of these terms across banking and financial laws.
Conclusion
Section 2 forms the foundation of the Reserve Bank of India Act, 1934. It defines the key institutions, financial concepts, and technical terms used throughout the Act, ensuring consistency in interpretation and implementation. A clear understanding of these definitions is essential for correctly interpreting the substantive provisions of the RBI Act.