Since its inception, the Reserve Bank of India has undertaken the traditional central
banking function of managing the government’s banking transactions. The Reserve
Bank of India Act, 1934 requires the Central Government to entrust the Reserve Bank
with all its money, remittance, exchange and banking transactions in India and the
management of its public debt. The Government also deposits its cash balances with
the Reserve Bank. The Reserve Bank may also, by agreement, act as the banker and
debt manager to State Governments. Currently, the Reserve Bank acts as banker to
all the State Governments in India (including Union Territory of Puducherry), except
Sikkim. For Sikkim, it has limited agreement for management of its public debt.
The Reserve Bank has well defined obligations and provides several banking services
to the governments. As a banker to the Government, the Reserve Bank receives and
pays money on behalf of the various Government departments. The Reserve Bank also
undertakes to float loans and manage them on behalf of the Governments. It provides
Ways and Means Advances – a short-term interest bearing advance – to the Governments,
to meet temporary mismatches in their receipts and payments. Besides, like a portfolio
manager, it also arranges for investments of surplus cash balances of the Governments.
The Reserve Bank acts as adviser to Government, whenever called upon to do so, on
monetary and banking related matters. The Central Government and State Governments
may make rules for the receipt, custody and disbursement of money from the consolidated
fund, contingency fund, and public account. These rules are legally binding on the
Reserve Bank as accounts for these funds are with the Reserve Bank .
The banking functions for the governments are carried out by the Public Accounts
Departments at the offices/branches of the Reserve Bank. As it has offices and sub-offices
in 29 locations, the Reserve Bank appoints other banks to act as its agents for
undertaking the banking business on behalf of the governments. The Reserve Bank
pays agency bank charges to the banks for undertaking the government business on
its behalf. As of now, management of public debt, including floatation of new loans,
is done by the Internal Debt Management Department at the Central Office and Public
Debt Office at offices/branches of the Reserve Bank. Final compilation of Government
accounts, of the Centre and the States, is done at Nagpur office of the Reserve
Bank which has a Central Accounts Section.