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Explain the role of the Reserve Bank of India (RBI) as the "Bank of Banks" and how it assists commercial banks during challenging situations.
Answer:
Answer by Student
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The Reserve Bank of India (RBI) is the
central bank
of India. It is responsible for
regulating
the banking system and
monetary policy
in the country. The RBI is also the “
Bank of Banks
“. This means that it acts as a
lender of last resort
to commercial banks.
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When commercial banks face
challenging situations
, such as a
run on the bank
, they can borrow money from the RBI. The RBI provides this money at a
repo rate
, which is a very low interest rate. This helps to ensure that commercial banks have enough
cash flow
to meet their obligations to depositors.
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The RBI also provides other assistance to commercial banks during challenging situations. For example, it can provide
guarantees
to commercial banks, which makes it easier for them to borrow money from other sources. The RBI can also provide cash flow to commercial banks through
open market operations
.
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The RBI’s role as the “Bank of Banks” helps to ensure the
stability
of the banking system in India. It also helps to protect depositors’ money.
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Here are some examples of how the RBI has assisted commercial banks during challenging situations:
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In 2008, during the global financial crisis, the RBI provided cash flow to commercial banks through open market operations. This helped to prevent a cash flow crisis in India.
- In 2013, when there was a run on the Yes Bank, the RBI provided the bank with cash flow and a guarantee. This helped to prevent the bank from collapsing.
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In 2008, during the global financial crisis, the RBI provided cash flow to commercial banks through open market operations. This helped to prevent a cash flow crisis in India.
- The RBI’s role as the “Bank of Banks” is an important part of the Indian financial system. It helps to ensure the stability of the banking system and protects depositors’ money.
