Economics • Banking & FinanceEasy
What is the primary function of the Reserve Bank of India as the lender of last resort?
A. Providing emergency financial assistance to commercial banks facing temporary liquidity crunches✓ Correct Answer
B. Granting long-term personal loans directly to retail consumers during recessions
C. Regulating foreign exchange rates through direct export subsidies
D. Fixing minimum support prices for agricultural commodities nationwide
💡 Solution & Explanation
As the lender of last resort, the Reserve Bank of India extends emergency credit to solvent commercial banks experiencing severe short-term liquidity stress to prevent systemic financial contagion. Retail loans are handled by commercial banks rather than the central bank. Minimum support prices are recommended by the Commission for Agricultural Costs and Prices.
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