UPSC Prelims 2012 · Question 75 of 98
UPSC Prelims 2012 question on RBI Bankers Bank
- ExamUPSC CSE
- Year2012
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicBanking
- DifficultyMedium
- TypeStatement
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 codes given below:
Show answer
Answer: D. 1, 2 and 3
Verdict
Correct Answer: 1, 2 and 3
Analysis
The RBI acts as a banker’s bank because it performs banking functions for commercial banks.
It accepts their deposits, provides liquidity support and guides them on monetary and banking matters.
Statement by statement
1. Other banks retain their deposits with the RBI — Correct
Scheduled commercial banks are required to keep a portion of their deposits with the RBI as Cash Reserve Ratio.
This makes the RBI the custodian of bank reserves.
2. The RBI lends funds to commercial banks in times of need — Correct
The RBI acts as the lender of last resort.
It provides liquidity support to banks during financial stress through mechanisms such as repo operations and other liquidity facilities.
3. The RBI advises commercial banks on monetary matters — Correct
As the apex monetary authority, the RBI guides and regulates commercial banks.
It issues directions on credit control, banking operations, liquidity management and monetary policy transmission.
Extra UPSC info
* RBI is India’s central bank and was established in 1935.
* RBI was nationalised in 1949.
* CRR is the portion of deposits banks must keep with the RBI in cash.
* RBI is also banker to the Central and State Governments.
* RBI has the sole authority to issue currency notes in India, except the one-rupee note.
* RBI manages foreign exchange reserves and regulates the external value of the rupee.
* RBI controls credit using tools like repo rate, reverse repo rate, CRR, SLR and Open Market Operations.
How to crack it
RBI is called a banker’s bank because commercial banks keep reserves with it, borrow from it in need and follow its monetary guidance.