1. Lending to trade and industry bodies when they fail to borrow from other sources 

2. Providing liquidity to the banks having a temporary crisis 

3. Lending to governments to finance budgetary deficits 

Select the correct answer using the code given below. 

(a) 1 and 2 

(b) 2 only 

(c) 2 and 3 only

(d) 3 only

Answer: b

Explanation:

As a Banker to Banks, the Reserve Bank also acts as the ‘lender of the last resort’. It can come to the rescue of a bank that is solvent but faces temporary liquidity problems by supplying it with much needed liquidity when no one else is willing to extend credit to that bank.

The Reserve Bank extends this facility to protect the interest of the depositors of the bank and to prevent possible failure of the bank, which in turn may also affect other banks and institutions and can have an adverse impact on financial stability and on the economy.

Hence, option b is correct.

Read: Solved Economy PYQs With Explanation 2021 UPSC Prelims