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:
Answer & explanation
Answer: (d) 1, 2 and 3
As banker to banks, the RBI keeps the accounts of banks, acts as their lender of last resort, and guides them with advice and cautions under its statutory powers. All three statements describe this role, so the answer is (d).
- ✓ 1. Banks keep accounts with the RBI to meet statutory reserve requirements and to hold transaction balances. They use these balances to settle dues among themselves.
- ✓ 2. The RBI is the lender of last resort. It supplies liquidity to a solvent bank facing a temporary shortage when no one else is willing to lend to it.
- ✓ 3. Section 36 of the Banking Regulation Act, 1949 empowers the RBI to caution or prohibit banks against particular transactions and to give advice to any banking company. As the monetary authority, the RBI guides banks within the monetary framework it sets.
Remember · Banker to banks means three things: banks hold accounts with the RBI, the RBI is lender of last resort, and the RBI advises and regulates banks.
📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 3 (practise this chapter)
Sources
- RBI – Banker to Governments and Banks (Overview) ↗ “Enabling banks to maintain their accounts with the Reserve Bank for statutory reserve requirements and maintenance of transaction balances … It can come to the rescue of a bank that is solvent but faces temporary liquidity problems by supplying it with much needed liquidity when no one else is willing to extend credit to that bank.”
- Banking Regulation Act, 1949, Section 36 (copy hosted by IFSCA) ↗ “caution or prohibit banking companies generally or any banking company in particular against entering into any particular transaction or class of transactions, and generally give advice to any banking company”
- NCERT Class 12 · Introductory Macroeconomics, Chapter 3 “This role of RBI, that of being ready to lend to banks at all times is another important function of the central bank, and due to this central bank is said to be the lender of last resort.”
Question: UPSC Civil Services (Preliminary) 2012, General Studies Paper I. Explanation: Minimalist IAS, checked 25 Oct 2026 (how we verify). ·
