The Reserve Bank of India Act, 1934

What it does

The Act constituted the Reserve Bank as the central bank of India. It states the Bank's constitution and management, gives it the right to issue bank notes, and provides for the conduct of the monetary policy and the bankers' business that a central bank carries on. Its chapter on non-banking financial institutions, which includes sections 45JA, 45L and 45M, gives the Bank the power to regulate those institutions: to determine policy and give directions to them, to call for information, and to give directions to financial institutions generally.

The Reserve Bank began its work on 1 April 1935. The Act has been amended many times, but the structure of a central bank with currency and credit powers is that of the original.

Who it binds

The Reserve Bank itself, the banks and other institutions it deals with, and the non-banking financial companies that come under its chapter. A direction issued under the chapter binds the company to which it is addressed, and the class to which a general direction is addressed. The Act does not bind a borrower or a customer in the ordinary way, though the Directions made under it reach the terms on which a lender may deal with them.

What has changed, and when

The Reserve Bank has in recent years restated much of its regulation as consolidated Directions of 2025, issued under the Act and other statutes. Four of those appear on this site: the Directions on authentication mechanisms for digital payment transactions, the Directions on resolution of stressed assets by commercial banks, the Directions on the treatment of wilful defaulters and large defaulters, and the Digital Lending Directions. The Digital Lending Directions of 8 May 2025 were issued under sections 45JA, 45L and 45M of this Act among the powers of other statutes, and took three earlier circulars into one.

What turns on it in practice

The site's note on digital lending explains why the source of power matters. A direction under section 35A of the Banking Regulation Act, 1949 binds a bank as a direction, and a breach is a regulatory default in its own right and not a matter of guidance not followed. The same is true of a direction under the non-banking financial company chapter of this Act. A lender, a lending service provider and a fintech partner that works with them should know which instrument governs which party, and under which section of which Act.

The banking, SARFAESI and debt recovery practice area acts in regulatory banking matters before the tribunals and the financial regulators. The Act and the Directions under it come into those matters when a borrower or a lender relies on the Reserve Bank's rules for a recovery, a classification, a restructuring or a reporting obligation. A wilful defaulter classification, for example, follows its own Directions and its own committees, and a challenge to it starts from the Directions and the Act under which they were made.

The Reserve Bank's Directions are revised often. An advice that relies on one has to state the date of the Direction relied on, and the section of the Act under which it was made.