On the other hand, the RBI may, by agreement with any State Government, take over similar functions on behalf of that Government. Accordingly, the RBI is the banker to both the Central Government and all the State Governments, except two, in the Indian Federation. The RBI also manages the open market borrowings of the Central Government and all the States, with two exceptions.
The market-borrowing programme of the State Governments is finalised by the Government of India and the Planning Commission, keeping in view the provisions of Article 293(3) of the Constitution of India. The Article stipulates that a State may not, without the consent of the Government of India, raise any borrowings if it has any loan outstanding, which is repayable to the Government of India.