What role of RBI is known as ‘lender of last resort’?
When a commercial bank faces financial crisis and fails to obtain funds from other sources then the central bank plays a vital role of lender of last resort. It provides the financial assistance in form of credit. This role of Central Bank saves the commercial bank from bankruptcy. Thus the central bank plays the role of guarantor for the commercial banks and maintains sound and healthy banking system in the economy.
Through this role, the central bank ensures that
•The banking system of the country does not suffer from any setback
•The money market remains stable