Question

Read the extract given below and answer the questions:

The objective of the Reserve Bank of India Occasional Papers is to publish high quality research produced by the staff of the Reserve Bank of India on a broad array of issues of interest to a large audience including academics and policy makers. The papers selected for publications are subject to intense review by internal and external referees. – Reserve Bank of India, 2003

1. State the type of Credit control method described in the above extract.
2. Define Central Bank.
3. Why is Central Bank referred to as a Banker’s Bank?
4. State any one difference between the Central Bank and Commercial Bank.

Answer 1

1. The credit control method mentioned in the extract is qualitative credit control, which aims to regulate the direction in which credit is used rather than the overall supply of money.
2. The Central Bank is the apex bank of a country responsible for controlling the money supply, issuing and managing currency, regulating commercial banks, and framing financial policies. In India, the Reserve Bank of India (RBI) functions as the Central Bank.
3. The Central Bank is known as the Banker’s Bank because it assists and oversees the working of commercial banks. It accepts deposits from banks, provides them with loans, and acts as a lender of last resort during financial difficulties.
4. Difference Between Central Bank and Commercial Bank are as follows:
   • The Central Bank regulates the nation’s financial system and issues currency. It also functions as the banker to all commercial banks.
   • A commercial bank offers banking services such as accepting deposits, granting loans, and handling transactions for the public and businesses with the aim of earning profit. It functions as a banker to its customers.