The functions of the central bank are as under:
1. Acting as a ‘Banker to the Government’: As a banker to the Government, the central bank issues and receives payments on behalf of the Government whenever it becomes necessary. It also floats public debts and manages it for a shorter or longer period as the case may be, for the Government.
2. Fixation of Margin Requirements on Secured Loans: The margin is the difference between the ‘loan value’ and the ‘market value’ of securities offered by borrowers against secured loan. By prescribing the margin requirements on secured loans, the ‘central bank’ does not permit the commercial bank to lend to their customers the full value of securities offered by them but only a part of their market value.
3. Development Functions: In an underdeveloped and developing nations, the ‘central bank’ performs developing and promotional functions also. For their objective, special financial institutions are established for the development and progress of different sectors like agriculture, industry and commerce and it maintains relation with international organization like World Bank. In our country, the RBI has special department i.e. NABARD for agricultural credits.
