Q. The Reserve Bank of India (RBI) acts as a banker's bank. This would imply which of the following?
- Other banks retain their deposits with the RBI.
- The RBI lends funds to the commercial banks in times of need.
- The RBI advises the commercial banks on monetary matters.
Select the correct answer using the codes given below: (UPSC Prelims 2012)
Answer:
1, 2 and 3
Notes: The correct answer is
[D] 1, 2 and 3. The term "banker's bank" signifies that the
Reserve Bank of India (RBI) maintains a relationship with commercial banks similar to the one those banks maintain with their own customers.Why all statements are correct:
- Retaining Deposits (Statement 1 is Correct): Under the Cash Reserve Ratio (CRR) requirements, commercial banks are mandated to keep a certain percentage of their total deposits with the RBI. This ensures the liquidity and safety of the banking system.
- Lending Funds (Statement 2 is Correct): The RBI acts as the "Lender of Last Resort." When commercial banks face a temporary liquidity crunch and cannot raise funds from other sources, they approach the RBI for loans (often through the Repo window or Marginal Standing Facility).
- Advising on Monetary Matters (Statement 3 is Correct): As the central monetary authority, the RBI provides guidance and directives to banks regarding credit control, interest rate structures, and operational efficiency to ensure the stability of the Indian economy.