Which of the following is the function of Central Bank?

Ans – (d)

Explanation:-

One of the functions of the central bank is the Banker’s Bank.

Banker’s Bank and Supervisor:-

There are a number of commercial banks in the country. There should be some agency to regulate and supervise their proper functioning. Being the apex bank, the central bank (RBI) acts as the banker to other banks. In this sense, it bears the same relationship with commercial banks as the latter maintains with the general public.

As the banker to banks, the central bank functions in three capacities:

(i) Custodian of Cash Reserves: Commercial banks are required to keep a certain proportion of their deposits (known as Cash Reserve Ratio or CRR) with the central bank. In this way, the central bank acts as a custodian of the cash reserves of commercial banks.

(ii) Lender of the Last Resort: When commercial banks fail to meet their financial requirements from other sources, i.e., in case of a financial emergency, they approach the central bank to give loans and advances as lender of the last resort. Central Bank assists these banks through discounting of approved securities and bills of exchange.

(iii) Clearing House:- As the central bank holds the cash reserves of all the commercial banks, it becomes easier and more convenient for it to act as their clearing house. All commercial banks have their accounts with the central bank. Therefore, the central bank can easily settle claims of various commercial banks against each other, by making debit and credit entries in their accounts.

As a supervisor, the central bank regulates and controls the commercial banks. The regulation of banks may be related to their licensing, branch expansion, liquidity of assets, management, merging, winding up, etc. The control is exercised by periodic inspection of banks and the returns filed by them.