Sections 37 and 38 of the RBI Act: Foreign Securities and Rupee Coin Circulation
Section 37 provides a limited, government-approved relaxation of the Reserve Bank of India's foreign securities asset requirement. Section 38 regulates how the Central Government and the Reserve Bank of India place rupee coins into circulation.
Section 37: Suspension of Asset Requirements as to Foreign Securities
Section 37 of the Reserve Bank of India Act, 1934 operates as an exception to the preceding asset requirements. Under Section 33(2), the Issue Department must ordinarily maintain the prescribed minimum value of foreign securities as part of its assets. Section 37 permits a temporary shortfall, but only with the previous sanction of the Central Government.
Statutory provision
Notwithstanding anything contained in the foregoing provisions, the Bank may, with the previous sanction of the Central Government, for periods not exceeding six months in the first instance, which may, with the like sanction, be extended from time to time by periods not exceeding three months at a time, hold as assets foreign securities of less amount in value than that required by sub-section (2) of section 33.
Meaning and conditions
- Previous sanction: The RBI must obtain Central Government approval before relying on the relaxation.
- Initial duration: Approval may cover no more than six months initially.
- Extensions: Each extension requires similar sanction and cannot exceed three months at a time.
- Limited effect: The provision concerns the foreign securities requirement in Section 33(2); it is not a general exemption from all asset-backing obligations.
The phrase "notwithstanding anything contained in the foregoing provisions" is a non-obstante clause. It gives Section 37 overriding effect to the extent of any inconsistency with the preceding provisions covered by the exception. The reference to foreign securities concerns the class of eligible foreign assets dealt with under Section 33, not securities held by ordinary investors.
Section 38: Obligations of Government and the Bank in Respect of Rupee Coin
Section 38 governs the channel through which rupee coins enter circulation and limits the Reserve Bank's disposal of those coins to circulation purposes.
Statutory provision
The Central Government shall undertake not to put into circulation any rupees, except through the Bank; and the Bank shall undertake not to dispose of rupee coin otherwise than for the purposes of circulation.
Meaning and legal effect
- Central Government: Rupee coins are to be placed into circulation through the Reserve Bank of India.
- Reserve Bank of India: The Bank must not dispose of rupee coins for purposes other than circulation.
- Purpose: The section establishes a coordinated statutory mechanism for introducing rupee coin into the currency system.
Section 38 should be read with Section 39, which addresses the exchange and supply of different forms of currency, and with the Coinage Act, 2011, which governs matters including coins and legal tender.
How Sections 37 and 38 Differ
Section 37 concerns the composition of assets backing the RBI's Issue Department and provides a temporary, approval-based exception. Section 38 concerns rupee coin distribution and establishes continuing obligations on both the Central Government and the RBI. Neither provision independently sets the face value of banknotes or coins.
For related reading, see Section 33: Assets of the Issue Department and Sections 39 and 40: Currency Supply and Foreign Exchange.
Official Legal Sources
The statutory wording and amendment notes may be checked against the Reserve Bank of India Act, 1934 (India Code, PDF) and the Department of Financial Services publication of the Act. Refer to the latest notified amendments when applying the provisions to a particular matter.