How the RBI governor is appointed?

The Reserve Bank’s affairs are governed by a Central Board of Directors (CBD). Members of the board are appointed by the Government of India in accordance with Section 8 of the Reserve Bank of India Act.

The CBD as the administrative apex body of the RBI, contains two sets of directors. First is the official directors and second, non-official directors.

The official directors comprised of the Governor and not more than four Deputy Governors who are appointed/nominated by the Central Government under the RBI Act. RBI Governors is thus appointed by the Government 

Besides the official directors, there can be fourteen non-official directors as well in the CBD. Government can nominate two government officials into the CBD.

The Governor: appointment and term in office

The Governor and Deputy Governors hold office for periods not exceeding five years. The term of the governor may be fixed by the government at the time of his appointment. (Urjit Patel and Raghuram Rajan were appointed for three years; though a governor can get five-year tenure). Governor (and also Deputy Governors) is eligible for reappointment or extension. Section 8 (4) of the RBI Act explains the term of the Governor and Deputy Governors. “The Governor and a Deputy Governor shall hold office for such term not exceeding five years as the [Central Government] may fix when appointing them, and shall be eligible for re-appointment.” (Section 8. 4. – Composition of the Central Board, and term of office of Directors., P 17, RBI Act, 1934)

According to the Cabinet Committee, which took the decision on the appointment of Urjit Patel, “”The appointment has been made based on the recommendation of the Financial Sector Regulatory Appointments Search Committee (FSRASC), headed by the Cabinet Secretary.”

 In absence of the Governor, a Deputy Governor nominated by him functions as the Chairman of the Central Board.

Salaries and allowances of the Governor and Deputy Governors may be determined by the Central Board, with the approval of the Central Government. The governor can be removed by the government.