Section 21 of the Reserve Bank of India Act, 1934 - Government Business in India

Section 21 governs the Central Government's entrustment of its banking business in India to the Reserve Bank of India. It covers money, remittance, exchange and banking transactions, deposit of Government cash balances, management of public debt, issue of new loans, determination of conditions where agreement fails, and Parliamentary laying of agreements.

Section 21(1) - Central Government banking transactions

The Central Government shall entrust RBI, on conditions agreed between them, with all its money, remittance, exchange and banking transactions in India. In particular, the Central Government must deposit all its cash balances with RBI free of interest.

The provision establishes RBI's central role in handling the Union Government's banking transactions in India. Money transactions concern Government funds; remittance transactions concern transfer of those funds; exchange transactions concern exchange-related banking operations; and the wider expression banking transactions covers the Government's banking business within the statutory arrangement.

Cash balances deposited free of interest

Section 21(1) specifically requires the Central Government to deposit all its cash balances with RBI free of interest. This express statutory term forms part of the Government banking relationship created by the section.

Proviso to Section 21(1) - Places without RBI branches or agencies

The subsection does not prevent the Central Government from carrying on money transactions at places where RBI has no branches or agencies. The Central Government may hold at such places the balances it requires.

This proviso creates a practical exception to the general entrustment rule. Where RBI lacks a branch or agency, the Central Government is not prevented from conducting necessary money transactions locally or maintaining required balances there.

Section 21(2) - Management of public debt and issue of new loans

The Central Government shall entrust RBI, on agreed conditions, with management of the public debt and with the issue of any new loans.

Public debt in this context refers to the borrowing obligations of the Union. The provision places both management of that debt and the issue of new Government loans within the statutory RBI-Central Government arrangement.

Section 21(3) - What happens if conditions cannot be agreed?

If RBI and the Central Government fail to reach agreement on the conditions referred to in Section 21, the Central Government shall decide what those conditions will be.

Subsection (3) therefore provides a statutory fallback mechanism. Failure to agree does not leave the Government banking arrangement without operative conditions; the Central Government has the authority to determine them.

Section 21(4) - Agreement to be laid before Parliament

An agreement made under Section 21 must, as soon as may be after it is made, be laid before Parliament.

This creates an express Parliamentary laying requirement for agreements made under the section.

Section 21(5) - Omitted provision

Subsection (5) was omitted by the States Reorganisation Act, 1956 with effect from 1 November 1956. The earlier subsection had been inserted by the Reserve Bank of India (Amendment) Act, 1951. It is therefore not part of the present operative requirements of Section 21.

Relationship between Sections 20 and 21

Section 20 states RBI's obligation to undertake specified Central Government banking business, including accepting Government money, making payments, conducting exchange and remittance operations and managing Union public debt. Section 21 complements that provision from the Central Government side by requiring the Government to entrust the specified transactions, public-debt management and new-loan functions to RBI on the statutory terms.

Relationship with Sections 21A and 21B

Section 21A separately provides for RBI to undertake specified State Government banking and public-debt business by agreement with a State Government. Section 21B deals with the transitional effect of certain RBI-State agreements existing before 1 November 1956.

Key legal points under Section 21

Official legal sources: For the current consolidated statutory text and amendment notes, refer to the India Code - Reserve Bank of India Act, 1934, the Department of Financial Services, and the Reserve Bank of India.