Question

what role of the rbi is known as the lender of last resort?

Answer 1

Commercial banks at times face financial crises and at that time are unable to get funds from any other sources.

In this situation, they seek funds from the central bank in order to tide over the crisis. In India, RBI (Reserve Bank of India) is the central bank and saves commercial banks from bankruptcy.

Due to this reason, RBI is known as the lender of last resort.

Also read:

Credit Creation by Commercial Bank

Difference Between Monetary Policy and Fiscal Policy

Limits to Credit Creation and Money Multiplier