Page 31 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes 3. The Government of India makes one rupee notes and coins and small coins and the RBI on
its behalf, distributes them all over the country as agent of the government.
4. Originally, the assets of the Issue Department consisted of not less than two-fifths of gold
coin, gold bullion or securities provided the amount of gold was not less than Rs. 40 crores
in value.

5. The remaining three-fifths of the assets might be in form of rupee coins, Government of
India rupee securities, eligible bills of exchange and promissory notes payable in India.
6. Due to the emergencies of the Second World War and the post-war period, these provisions
were considerably modified.
7. Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange
reserves of Rs. 200 crores, of which at least Rs. 115 crores should be in gold. The system as
it exists today is known as the minimum reserve system.

Notes The Reserve Bank has a separate Issue Department, which is entrusted with the
issue of currency notes.

Banker to Government

Reserve Bank of India acts as Government banker, agent and adviser.
1. The Reserve Bank is the agent of the Central Government and of all state governments in
India, excepting that of Jammu and Kashmir.

2. The Reserve Bank has the obligation to transact government business, to keep the cash
balances as deposits free of interest, to receive and to make payments on behalf of the
government
3. Carry out government exchange remittances and other banking operations.
4. The Reserve Bank of India helps the government – both the Union and the states to float
new loans and to manage public debt.
5. It makes ways and means advances (WMA) to the governments for 90 days.
6. It makes loans and advances to the States and local authorities.
7. It acts as adviser to the government on all monetary and banking matters.

Bankers’ Bank and Lender of the Last Resort

The Reserve Bank of India acts as the bankers’ bank:

According to the provisions of the Banking Companies Act of 1949, every scheduled bank was
required to maintain with the Reserve Bank a cash balance equivalent to 5% of its demand
liabilities and 2 per cent of its time liabilities in India. By an amendment of 1962, the distinction
between demand and time liabilities was abolished and banks have been asked to keep cash
reserves equal to 3 per cent of their aggregate deposit liabilities. The Reserve Bank of India can
change the minimum cash requirements.
Commercial banks can always expect the Reserve Bank of India to come to their help in times of
banking crisis the Reserve Bank becomes not only the banker’s bank but also the lender of the
last resort.

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