Banker to the government function is done by central banks like the RBI. As a banker to the government central banks carries out certain banking functions to the government. It holds custody of the cash balance of the government, gives temporary loans to both central and state governments and manages the debt operations of the central government.
The Reserve Bank has traditionally managing government’s banking transactions. 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 to a State Government. Currently, the Reserve Bank acts as banker to all the State Governments in India, except Sikkim. It has limited agreements for the management of the public debt of the Sikkim Government.
