Question

how does RBI act as banker's bank?

Answer 1

Reserve Bank of India acts as Banker's Bank. Like individual consumers, businesses and organisation of all kinds, banks need their own mechanism to transfer funds and settle inter-bank transaction such as borrowing from and lending to otherbanks and customer transactions.

Answer 2

The Reserve Bank of India monitors the amount of money that banks loan out, and also the amount of cash balance maintained by them. It also ensures that banks give out loans not just to profiteering businesses but also to small cultivators, small-scale industries and small borrowers. Periodically, banks are supposed to submit information to the RBI on the amounts lent to whom and at what rates of interest.

This monitoring is necessary to ensure that equality is preserved in the financial sector, and that small industries are also given an outlet to grow. This is also done to make sure that banks do not loan out more money than they are supposed to, as this can lead to situations like the Great Depression of the 1930s in the USA, which greatly affected the world economy as well.