RESERVE BANK OF INDIA (PART -5)

BANKER AND DEBT MANAGER TO GOVERNMENT

Managing the government’s banking transactions is a key RBI role. Like individuals, businesses and banks, governments need a banker to carry out their financial transactions in an efficient and effective manner, including the raising of resources from the public. As a banker to the central government, the Reserve Bank maintains its accounts, receives money into and makes payments out of these accounts and facilitates the transfer of government funds. RBI also act as the banker to those state governments that have entered into an agreement with us.

The role as banker and debt manager to government includes several distinct functions:

· Undertaking banking transactions for the central and state governments to facilitate receipts and payments and maintaining their accounts.

· Managing the governments’ domestic debt with the objective of raising the required amount of public debt in a cost-effective and timely manner.

· Developing the market for government securities to enable the government to raise debt at a reasonable cost, provide benchmarks for raising resources by other entities and facilitate transmission of monetary policy actions.

At the end of each day, electronic system automatically consolidates all of the government’s transactions to determine the net final position. If the balance in the government’s account shows a negative position, RBI extend a short-term, interest-bearing advance, called a Ways and Means Advance (WMA) the limit or amount for which is set at the beginning of each financial year in April.

The RBI’s Government Finance Operating Structure

The Reserve Bank’s Department of Government and Bank Accounts oversees governments’ banking related activities. This department encompasses:

Public accounts departments: manage the day-to-day aspects of Government’s banking operations. The Reserve Bank also appoints commercial banks as its agents and uses their branches for greater access to the government’s customers.

Public debt offices: provide depository services for government securities for banks, institutions and service government loans.

Central Accounts Section at Nagpur: consolidates the government’s banking transactions.

The Internal Debt Management Department based in Mumbai raises the government’s domestic debt and regulates and develops the government securities market.

RBI AS THE GOVERNMENTS’ DEBT MANAGER

In this role, RBI set policies, in consultation with the government and determine the operational aspects of raising money to help the government finance its requirements:

o   Determine the size, tenure and nature(fixed or floating rate) of the loan

o   Define the issuing process including holding of auctions

o   Inform the public and potential investors about upcoming government loan auctions

The Reserve Bank also undertakes market development efforts, including enhanced secondary market trading and settlement mechanisms, authorisation of primary dealers and improved transparency of issuing process to increase investor confidence, with the objective of broadening and deepening the government securities market.

TO BE CONTINUED..........