Overview The RBI continues to evolve its regulatory framework to address emerging payment‑technology risks and external macro‑economic shocks. In 2026 it introduced mandatory two‑factor authentication for digital transactions, proposed electronic cheques, launched an AI‑driven fraud‑prevention tool, and tightened foreign‑exchange exposure limits as the rupee weakened following the West Asia war. Key Recent Initiatives (2026) Two‑factor authentication for digital payments (effective 1 April 2026) : OTP alone will no longer suffice; a PIN, password, fingerprint or facial scan is required. Banks may be liable to compensate customers if fraud occurs due to weak security. e‑cheque framework : The RBI proposes a fully digital cheque that retains the legal sanctity of paper cheques while offering faster clearing, paper‑less processing and traceability. e‑cheque will be signed using secure digital signatures and processed by banks like a traditional cheque. MuleHunter.AI : An AI‑powered system to identify “mule” accounts—bank accounts used by criminals for laundering. It analyses transaction patterns and flags suspicious accounts for bank action. MuleHunter.AI is being piloted across major commercial banks. Traditional Functions & Governance Established on 1 April 1935 under the Reserve Bank of India Act, 1934 . Originated from the recommendations of the Hilton Young Commission . Monetary policy is steered by the Monetary Policy Committee (MPC) , which sets the repo rate and other policy rates. Key reserve tools: Cash Reserve Ratio (CRR) , Statutory Liquidity Ratio (SLR), and Open Market Operations (OMOs). Governed by a Central Board comprising the Governor, up to four Deputy Governors, ten non‑official directors and two government officials. RBI’s Response to the West Asia Conflict (2024‑2026) Rising oil prices and a depreciating rupee prompted the RBI to cap banks’ net open exposure in the foreign‑exchange market at $100 million per day (effective 10 April 2026). Earlier, banks could hold positions up to 25 % of their capital. The move aims to curb rupee volatility and preserve the dwindling foreign‑exchange reserves, which fell by over $30 billion to $698.34 billion since the conflict began. Former Deputy Governor Michael Patra suggested that India should tap the FIMA Repo Facility to obtain short‑term dollars without exhausting its own reserves. UPSC Relevance Understanding the RBI’s institutional history, its monetary‑policy toolkit, and recent regulatory reforms is essential for GS III (Economy) and GS II (Governance) questions. The link between external shocks (oil price, geopolitical conflict) and RBI’s forex‑management actions illustrates the interplay of international economics and domestic policy—an area frequently tested in the interview and essay sections. Way Forward / Points to Remember Monitor the implementation of two‑factor authentication and its impact on digital‑payment fraud statistics. Track the adoption timeline of e‑cheques and the legal framework governing them. Assess the effectiveness of MuleHunter.AI in curbing digital fraud. Watch for any revision of the net open exposure cap or use of the FIMA Repo Facility as the rupee stabilises.