The Reserve Bank of India (RBI) acts as a bankers' bank. This would imply which of the following? 1. Other banks retain their deposits with the RBI. 2. The RBI lends funds to the commercial banks in times of need. 3. The RBI advises the commercial banks on monetary matters. Select the correct answer using the codes given below:
- A2 and 3 only
- B1 and 2 only
- C1 and 3 only
- D1, 2 and 3Correct
Explanation
The Reserve Bank of India acts as a bankers bank through three primary functions represented in the options.
First, commercial banks are required to maintain a portion of their deposits with the RBI, known as the Cash Reserve Ratio. This ensures the safety of the banking system and helps the RBI control liquidity.
Second, the RBI acts as the lender of last resort. When commercial banks face a liquidity crunch or need short term funds, they borrow from the RBI through instruments like the Repo rate.
Third, as the head of the banking hierarchy and the monetary authority, the RBI regularly issues guidelines, directives, and advice to commercial banks regarding interest rates, lending policies, and overall monetary management to ensure financial stability.
Since all three statements accurately describe the relationship where the RBI functions as the supervisor and supporter of commercial banks, the correct answer is D.
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