Economics • Banking & FinanceEasy
What is the primary function of the Reserve Bank of India when it acts as the 'Banker to Banks'?
A. Providing direct commercial loans to retail agricultural borrowers in remote rural districts
B. Maintaining accounts for commercial banks and facilitating inter bank clearing and settlement services✓ Correct Answer
C. Regulating foreign direct investment inflows across manufacturing and service sectors
D. Formulating fiscal policy guidelines for state government annual budgets
💡 Solution & Explanation
As banker to banks, the Reserve Bank of India holds statutory reserves of commercial banks, provides emergency liquidity support, and manages inter bank clearing operations. Retail agricultural lending is handled by cooperative banks and regional rural banks rather than direct central bank intervention. Foreign investment regulation involves coordination with central government departments under FEMA guidelines. This central banking function ensures systemic stability and smooth functioning of the national payment mechanism.
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