question_answer

Explain 'Banker to the Government' function of the central bank.

Or

Explain 'Bankers' Bank? function of the central bank.

Answer:

Central bank acts as a banker and financial advisor to the government. As a banker to the government, it performs the following functions.

(i) It manages the account of the government.

(ii) It accepts receipts from the government and makes payment on behalf of it.

(iii) It grants short-term loans and credit to the government. It performs the task of managing the public debt.

(iv) The central bank advises the government on all the banking and financial matters. RBI gives loans to government when its expenditure exceeds its revenue. This is called deficit financing through funding from RBI.

Or

Central bank is the apex bank of all the commercial banks and financial institutions in the country. It holds the same relationship with the commercial banks as a commercial bank holds with its customer. The central bank accepts deposits from the commercial banks and holds it as reserves for them. The commercial banks are compulsorily required to hold a part of their deposits as reserve with the central bank in accordance with the cash reserve ratio (CRR). In addition to the CRR requirements, the commercial banks hold reserves with the central bank for clearing their settlements with other banks and to fulfill their requirements of inter-bank transfers.