Banking Awareness forms an important part of Bank exams. Study our Banking Awareness topics to excel in Bank exams. RBI as Banker to the Government
Introduction : The Reserve Bank of India is the Banker to the Central Government by Obligation and can act as Banker to the State Government with Agreement.
Extra : As of now, such agreements exist between RBI and all the State Governments except Government of Sikkim. Thus, the legal provisions vest Reserve Bank of India with both the right and obligation to function as banker to the government. For Sikkim, it has limited agreement for management of its public debt.
Sections of RBI Act related to Government Business:
- Section 20: Obligation of the Bank to transact Government business.
- Section 21: Bank to have the right to transact Government business in India.
- Section 21A:. Bank to transact Government business of States on agreement.
Roles of RBI as Banker to the Government:
- Receives and pays money on behalf of the various Government departments.
- Float loans and manage them on behalf of the Governments.
- Provides Ways and Means Advances – a short-term interest bearing advance
- Arranges for investments of surplus cash balances of the Governments.
- Acts as adviser to Government, whenever called upon to do so, on monetary and banking related matters.
Role of Agent Banks in Government Transactions: As the Reserve Bank of India is present in 31 locations, to cover all India location the Reserve Bank Reserve Bank appoints other banks to act as its agents for undertaking the banking business on behalf of the governments. RBI pays commission to these agency banks.
Banker to the Central Government
The Central Government is required to maintain a minimum cash balance with the Reserve Bank. Currently, this amount is Rs.10 crore on a daily basis and Rs.100 crore on Fridays, as also at the annual account closing day of the Centre and the Reserve Bank (end of March and June).
Banker to State Governments
All the State Governments are required to maintain a minimum balance with the Reserve Bank, which varies from state to state depending on the relative size of the state budget and economic activity. To tide over temporary mismatches in the cash flow of receipts and payments, the Reserve Bank provides Ways and Means Advances/Overdraft to the State Governments.
Reserve Bank of India also issues Sovereign Gold Bond (SGB) on behalf of Government of India.