Question

Explain the following function of Reserve Bank of India:

Banker to the government

Answer 1

One of the important functions of the Reserve Bank of India (RBI) is to act as the banker, agent, and financial advisor to the Central and State Governments. As a banker, the RBI performs all the banking functions of the government such as receiving and making payments, handling public accounts, and managing government cash balances. It also carries out exchange, remittance, and other banking operations on behalf of the government. As an agent, the Reserve Bank manages the public debt of the government, including the issue of government securities, treasury bills, and bonds. It conducts the borrowing programme of the government both in the money market and the capital market. As a financial advisor, the RBI provides advice to the government on monetary and financial matters, such as managing inflation, borrowing policy, public finance, and foreign exchange.