RAS question
Which bank is known as the banker's bank and lender of last resort?
Correct answer: (A) RBI.
The Reserve Bank of India is known as the banker’s bank and the lender of last resort.
Explanation
RBI is called the banker’s bank because it performs core banking functions for banks themselves, not just for the public. It holds the cash reserves of commercial banks, provides credit to them and supervises them. The RBI source supports this role by stating that, as banker to banks, RBI focuses on clearing and settlement of inter-bank obligations, provides an efficient means of funds transfer for banks, maintains banks’ accounts for statutory reserve requirements and acts as lender of last resort. That last role means RBI can provide emergency funds to banks facing a liquidity crisis, which is why the two phrases often appear together in Indian Economy questions.
Why the other options are wrong
- (B) SBI is a commercial bank and the largest commercial bank, so it is not the institution that keeps banks’ statutory reserve accounts or acts as lender of last resort.
- (C) SIDBI is meant for MSMEs, so its role is sector-specific rather than the system-wide banker-to-banks and emergency-liquidity role described for RBI.
- (D) NABARD is the apex agricultural bank, which makes it relevant to agricultural finance rather than RBI’s banking-system functions of statutory reserves, supervision and last-resort lending.
Concept
This tests central banking functions in Indian Economy: banker to banks, statutory reserve accounts, supervision and lender-of-last-resort support. It recurs in RAS because these RBI roles separate the monetary authority from commercial and sectoral development banks.