Role of RBI as a Banker to Government explained

Reserve Bank of India is the banker to Central Government as well as State governments. In terms of Section 20 and section 21 of the RBI Act 1934, RBI has the obligation to undertake the receipts and payments of the Central Government departments and to carry out the exchange, remittance and other banking operations, including the management of the public debt of the Union. The Reserve Bank may also, by agreement, act as the banker and debt manager to State Governments in terms of section 21A of RBI act. 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 banking operations on behalf of the governments are carried out by the Public Accounts Departments at the offices/branches of the Reserve Bank of India. As a banker to the Government, Reserve Bank of India also undertakes to float loans and manage them on behalf of the Governments. It also arranges for investments of surplus cash balances of the Governments like a portfolio manager.  Further, it provides a short-term interest bearing advance to the State Governments under Ways and Means Advances (WMA scheme) to meet temporary mismatches in their receipts and payments. The WMA scheme has provision for Special Drawing Facility (SDF) and Normal WMA. The SDF is extended against the collateral of the government securities held by the State Government. The incremental investments in Consolidated Sinking Fund and Guarantee Redemption Fund of state governments are also eligible to avail SDF as accounts for these funds are with the Reserve Bank of India.

RBI carries out the general banking business of the governments through its own offices or through scheduled commercial banks appointed as its agents. At present designated branches of all the public sector banks and select private sector banks act as RBI’s agents. The taxes and other remittances to the government account can be made either by filling the prescribed challans or electronically by login in to respective government departments/portals. However, if the remitter prefers to pay dues by way of cash, cheque, demand draft, these are required to be tendered with the authorized agency bank branches along with requisite challan. The designated banks are paid agency commission by RBI for conducting such State/Central Government transactions including payment of pensions.

RBI acts as the aggregator for accounting of all GST collections in the respective government accounts. Tax payers of GST may pay tax directly into government accounts at RBI by using NEFT / RTGS payment options provided in GST portal. Agency banks who collect the GST for challans generated by tax payers online on the GST portal report the collections for settlement to government accounts to RBI.

RBI also acts as adviser to Government, whenever called upon to do so, on monetary and banking-related matters.