Furthermore, State Governments are not permitted to borrow externally, unlike the Centre. The Reserve Bank plays two crucial roles in relation to the Indian fiscal system, namely as the banker to and the debt manager of both Central and State Governments. The RBI Act allows the RBI by agreement with a State Government to undertake its banking operations and management of its public debt.
While undertaking the role of banker for both the Central and State governments, the RBI also provides temporary support to tide over mismatches in their receipts and payments in the form of Ways and Means Advances (WMA). The Reserve Bank has been organizing a biannual Conference of State Finance Secretaries since November 1997.