Central bank acts as a banker and financial advisor to the government. As a banker to the government, it performs the following functions.
(i) It manages the account of the government.
(ii) It accepts receipts from the government and makes payment on behalf of it.
(iii) It grants short-term loans and credit to the government. It performs the task of managing the public debt.
(iv) The central bank advices the government on all the banking and financial matters. RBI gives loans to government when its expenditure exceeds its revenue. This is called deficit financing through funding from RBI.