Question

What role of RBI is known as 'lender of last resort'?

Hint:

The 'lender of last resort' function of central banks helps maintain confidence in the financial system by ensuring liquidity during emergencies.

Answer 1

Step 1: Understanding the role of RBI.
The Reserve Bank of India (RBI) is referred to as the 'lender of last resort' because it provides emergency funding to financial institutions that are facing liquidity crises and are unable to secure funds from other sources. This is a critical function in maintaining the stability of the financial system.

Step 2: Conclusion.
Thus, the RBI's role as the 'lender of last resort' ensures that it can provide financial support to institutions in times of crisis, preventing the collapse of the banking system.