Role of RBI as Banker & Debt Manager to the Government
In 1935, Reserve Bank of India, on its inception became the Banker and Debt Manager to the Government and this is a very important function. As per the Reserve Bank of India Act 1934, the Central Government entrusts 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.
In 1944, the Public Debt Act was passed and this act replaced the Indian Securities Act, 1920. Via this act RBI’s functions and powers with respect to management of Central public debt were increased. This act was replaced in 2007 with Governmment Securities Act.
However, Reserve Bank may also act as the banker to a State Governments. This is by an Agreement. Currently, the Reserve Bank acts as banker to all the State Governments in India, except Jammu & Kashmir and Sikkim. It has limited agreements for the management of the public debt of these two State Governments.
Minimum Cash Balance of the central Government
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 end of March and July. These provisions are as per the administrative arrangements (not as per any legislation).
Does RBI handle the banking of Individual Ministries ?
Previously yes, now no. Now every ministry has been given a public sector bank to manage its operations. But still RBI functions for the ministries for which it is nominated to do so.
Where the accounts are maintained?
Reserve Bank of India maintains the Principal Accounts of Central as well as State Governments at its Central Accounts Section, Nagpur. It has put in place a well structured arrangement for revenue collection as well as payments on behalf of Government across the country. A network comprising the Public Accounts Departments of RBI and branches of Agency Banks appointed under Section 45 of the RBI Act carry out the Govt. transactions. At present all the public sector banks and three private sector banks viz. ICICI Bank Ltd., HDFC Bank Ltd. and Axis Bank Ltd. act as RBI’s agents. Only authorised branches of Agency banks can conduct Govt. business.
All money for credit to Government account like taxes or other remittances can be made by filling the prescribed challans of the Government/Department concerned. These challans along with the requisite amount (by way of cash, cheque or DD) are required to be tendered with the authorised bank branches.
The receipted challans in case of cash tender are generally handed over to the remitter immediately across the counter. In case of payments made by cheque/DD, the receipted Challan is issued only on realization of the instruments based on the clearing cycle of the local Clearing House. In all such cases, a paper token is issued to the depositor indicating the date on which the receipted challan will be ready for delivery. The receipted Challan will have to be collected within 15 days from the date indicated on the paper token by surrendering the paper token.