Section 21 of RBI Act : Section 21: Bank To Have The Right To Transact Government Business In India

Explanation using Example

Imagine the government of India plans to undertake a large infrastructure project requiring significant funding. According to Section 21(1) of The Reserve Bank of India Act, 1934, the government would deposit its funds with the Reserve Bank of India (RBI) without interest. However, if the project site is in a remote area where the RBI does not have a branch, the government could still handle monetary transactions and maintain necessary cash balances locally.

For financing the project, the government decides to issue a new series of government bonds. As per Section 21(2), the RBI would be entrusted with managing this public debt and organizing the issuance of the new bonds, under agreed conditions.

If there is a disagreement on the terms of these services, Section 21(3) stipulates that the government has the final say on the conditions under which the RBI will provide these services.

Once the agreement between the RBI and the government is finalized, it must be presented to the Parliament as soon as possible in compliance with Section 21(4), ensuring transparency and legislative oversight of the arrangement.