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 code given below:

1. 2 and 3 only
2. 1 and 2 only
3. 1 and 3 only
4. 1, 2 and 3

Explanation

All are correct

• Other banks retain their deposits with the RBI: Commercial banks are required to maintain a portion of their deposits as reserves with the RBI (known as the Cash Reserve Ratio, or CRR) to ensure financial stability and liquidity management.
• The RBI lends funds to commercial banks in times of need: The RBI acts as the lender of last resort for commercial banks, providing them with funds through mechanisms like the repo rate and marginal standing facility (MSF) during liquidity crises.
• The RBI advises the commercial banks on monetary matters: The RBI guides and regulates commercial banks on monetary and credit policies to align with its broader goals of economic stability, inflation control, and growth.

Answer: (b) 1, 2 and 3; Difficulty Level: Easy