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One of my friends went to a casino. His uncle happened to see him inside. My friend got worried and told me about this:

My Friend: My uncle saw me in the casino with John

Me: What if he saw you in the casino? It doesn’t mean you were playing there. you were just accompanying John.

My Friend: I would keep John's coins on the table. My uncle saw it. He thought I would be playing.

I think my friend didn't want to say just a single action of keeping coin on the table but he wanted to say the repetitive action. Hence he said I would keep John's.......

Is the use of I would keep...... correct in the context?

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Neither would VERB or used to VERB is appropriate here.

These constructions are employed to speak of actions which were habitual or repeated over a fairly long period of time.

When we were living in Jersey John and I used to go to the casino every weekend; I never played myself, but I would keep John's chips for him.

In your example, however, your friend is speaking of what he was doing on a single occasion. He is describing what he was doing at the time his uncle saw him. Since that action—keeping John's coins—was already 'in progress' at the moment when his uncle saw him, he should employ the progressive construction, exactly as you do in the previous sentence:

You: What if he did see you in the casino? —it doesn’t mean you were playing there. You were just accompanying John.

Your Friend: I was keeping John's coins on the table. He saw that, and thought I was playing.

However, it is possible for your friend to use would here in a different sense: to indicate that what his uncle saw and concluded is not something which your friend knows to be a fact but is something which your friend infers from the situation:

Your Friend: I was keeping John's coins on the table. He would have seen that, and [would have] thought I was playing.

Note that this employs what I call the 'sham perfect' construction with the past-form modal + have + past participle. This is not a 'true' perfect but the perfect construction employed to mark past reference in a context which would otherwise be ambiguous.

  • In your last instance, is would the past form of will, signifying future in the past? Or, is it the tentative form of will, meaning "would be reasonable to conclude that ...'? To put it another way, in terms of perspectives, does would here indicate current orientation in the past (was keeping) or reference with hindsight to the past events (utterance)? @StoneyB – Kinzle B Oct 11 '15 at 13:21
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    @KinzleB It's a backshifted (tenseshifted) inferential will. The present-tense version would be "I'm keeping John's chips. Your uncle will have seen that, and will have thought that it was I who was playing, not John." The assertive present-tense version, without the inferential, would be "Your uncle saw that, and thought that it was I &c" – StoneyB Oct 11 '15 at 14:12
  • Ah, this is great. Is it possible to say "I'm keeping John's chips. My uncle would have seen that, and would have thought that it was I who was playing", where would could be regarded as the tentative form of will? @StoneyB – Kinzle B Oct 11 '15 at 16:30
  • @KinzleB No; would have is past-referent. That sentence only works if the uncle passed through quite recently, within the 'current' timeframe throughout which you have held John's chips. – StoneyB Oct 11 '15 at 16:41

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