Section 21A of the Reserve Bank of India Act, 1934 - State Government Business by Agreement
Section 21A enables the Reserve Bank of India to undertake specified banking and public-debt functions for a State Government when RBI and that State Government enter into an agreement. It covers the State's money, remittance, exchange and banking transactions in India, deposit of cash balances, management of State public debt and issue of new State loans.
Section 21A(1) - Agreement with a State Government
RBI may, by agreement with the Government of any State, undertake the categories of State Government business specified in clauses (a) and (b) of Section 21A(1).
The words "may by agreement" are central to the provision. Unlike Section 20, which directly states RBI's obligation regarding specified Central Government business, Section 21A provides an agreement-based statutory mechanism for State Government business.
Section 21A(1)(a) - Money, remittance, exchange and banking transactions
Under clause (a), the agreement may provide for RBI to undertake all the State Government's money, remittance, exchange and banking transactions in India.
The provision specifically includes the deposit, free of interest, of all the State Government's cash balances with RBI.
Money transactions concern the handling of State Government funds. Remittance transactions concern transfers of Government money. Exchange transactions cover exchange-related banking operations, while the broader expression banking transactions encompasses the State's banking business in India within the scope of the agreement.
Cash balances deposited free of interest
Section 21A(1)(a) expressly identifies the deposit of all State Government cash balances with RBI free of interest. This is not merely an incidental detail: it forms part of the statutory description of the State banking business that may be undertaken under the agreement.
Section 21A(1)(b) - Public debt and new State loans
Under clause (b), RBI may undertake the management of the public debt of the State and the issue of any new loans by that State.
Public debt of a State refers to the State's borrowing obligations. The provision therefore enables the agreement to place both management of existing State public debt and the issue of new State loans within RBI's statutory Government-banking functions.
Section 21A(2) - Agreement to be laid before Parliament
Every agreement made under Section 21A must, as soon as may be after it is made, be laid before Parliament.
This requirement creates a statutory Parliamentary laying obligation for agreements between RBI and State Governments under Section 21A.
Difference between Sections 20, 21 and 21A
- Section 20: imposes an obligation on RBI to undertake specified Central Government banking business, including management of the public debt of the Union.
- Section 21: concerns the Central Government's right to entrust its money, remittance, exchange and banking transactions in India and management of public debt to RBI, subject to the statutory arrangement.
- Section 21A: provides for State Government banking and public-debt business to be undertaken by RBI through an agreement with the Government of the State.
Key legal points under Section 21A
- Agreement is the statutory basis: RBI may undertake State Government business by agreement with that State Government.
- Transactions in India: clause (1)(a) expressly concerns the State's money, remittance, exchange and banking transactions in India.
- Cash balances: the provision specifically includes deposit of all State cash balances with RBI free of interest.
- State public debt: RBI may manage the public debt of the State under the agreement.
- New State loans: RBI may undertake the issue of new loans by the State.
- Parliamentary laying: an agreement made under Section 21A must be laid before Parliament as soon as may be after it is made.