Question

General public are not allowed to open accounts in the central bank. Does it mean that the central bank does not perform any commercial banking activity? Explain.

Hint:

The central bank bans public accounts but still banks for government and commercial banks (banker's bank).

Answer 1

Step 1: Confirm the premise:
It is true that the central bank (RBI) does not accept deposits from, or lend to, ordinary members of the public the way a commercial bank does — so in that specific retail sense, the central bank does not perform commercial banking with the general public.

Step 2: Explain who the central bank banks for instead:
Rather than the public, the central bank performs banking functions for two special clients: it is the banker to the government (holding government accounts, managing its receipts/payments, providing ways and means advances), and the banker's bank for commercial banks (holding their cash reserves, clearing inter-bank transactions, and acting as the lender of last resort in a crisis).

Step 3: Note the other core central-banking functions:
Beyond banking for government and banks, the central bank also has functions no commercial bank has — sole authority to issue currency notes, custodian of the nation's foreign exchange reserves, and controller of credit/money supply through monetary policy tools (CRR, SLR, repo rate).

Final Answer:
Yes, the statement effectively means the central bank does not do retail commercial banking with the public — but it still performs banking-type functions, just for the government and commercial banks, alongside its unique functions like note issue and credit control.