As banker to the banks: As banker to the banks, the Reserve bank acts the lender of last resort and grants accommodation to the scheduled banks in the following forms:
1. Re-discounting or purchase of eligible bills, and
2. Loans and advance against certain securities
Commercial Bill: A commercial bill arises out of bonafide commercial or trade transaction. It should be drawn on and payable in India and mature within 90 days from the date of purchase or discount. The period of maturity may be 180 days if the bill arises out of transaction relating to export of goods from India. It is essential that the bill bears two or more good signatures one of which should be that of a scheduled bank or a State Co-operative Bank.
Bill for Financing Agricultural Operations: Such a bill should be drawn or issued for the purpose of financing seasonal agricultural operations or the marketing of crops and mature within 15 months from the date of purchase or re-discount. They should be drawn and payable in India and bear two or more good signatures including that of a scheduled bank or a State Co-operative Bank.
Bill for financing Cottage and Small scale industries: These bills are drawn or issued for the purpose of financing the production or marketing activities of cottage and small scale industries approved by the Reserve Bank and mature within 12 months from the date of discount. They should be drawn and payable in India, bear, two or more good signatures including that of a state Co-operative bank or a State Financial Corporation and a guarantee from the State Government regarding the payment of the principal and interests on the bill.
Bill for holding or Trading in Government Securities: Such a bill should bear the signature of a scheduled bank and mature within 90 days from the date of purchase or rediscount and be drawn and payable in India.
A Foreign Bill: Such a bill must arise out of any bonafide transaction relating to the export of goods from India and mature within 180 days. It must be drawn in or on any country outside India which is a member of International Monetary Fund. The period of maturity will be 90 days if the bill is not related to export of goods from India.
It should be noted that the bills eligible for re-discounting must have a fixed maturity. The accommodation granted by the Reserve Bank had been in the form of loans and advances against securities including the above mentioned eligible bills. To encourage the practice of re-discounting of bills, the Reserve bank introduced the Bills Re-discounting Scheme with effect from November 1, 1971.
After the enactment of Reserve Bank of India (Amendment) Act 1974, the bills of exchange falling in categories above and bearing the signature of any financial institution, which is predominantly engaged in the acceptance of or discounting of bills of exchange and promissory notes and is approved by the Reserve Bank in this behalf are also eligible for the purpose of re-discounting.
Loans and Advances: Section 17 (4) enables the Reserve bank to grant loans and advances to the scheduled banks, repayable on demand or on the expiry of fixed periods not exceeding 90 days against the security of the following:
1. Stocks, funds and securities (other than immovable property) in which a trustee is authorized to invest trust money.
2. Gold or silver or documents of title to the same.
3. Such bills of exchange and promissory notes as are eligible for purchase or re-discount by the Reserve Bank (stated above) or those guaranteed by the State Government as to the repayment of the principal and interest.
4. Promissory notes of any scheduled bank or State Co-operative Bank supported by documents of title to goods, such documents having been transferred, assigned or pledged to any other bank as security for a loan or advance made for bonafide commercial or trade transaction or for the purpose of financing agricultural operation or the marketing of crops.