Economics • Banking & FinanceMedium
What is the primary mandate of the Reserve Bank of India when acting as the 'Lender of Last Resort'?
A. Providing long-term equity capital to private manufacturing corporations
B. Extending emergency credit to solvent commercial banks facing temporary liquidity shortages✓ Correct Answer
C. Regulating foreign exchange rates through direct currency devaluations
D. Guaranteeing all retail deposits against institutional fraud in cooperative banks
💡 Solution & Explanation
The lender of last resort function involves the central bank extending emergency financial assistance to solvent commercial institutions experiencing severe liquidity strains to prevent systemic panic. Insolvency requires resolution rather than temporary liquidity support. Equity capital provisions fall outside standard central banking mandates. Deposit insurance schemes provide retail protection up to statutory limits, distinct from emergency lending facilities.
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