The Reserve Bank of India (RBI) plays the role of a “lender of last resort” in several ways:

1. Emergency Lending: In times of crisis, the RBI provides emergency loans to commercial banks and other financial institutions to help them meet their liquidity requirements and prevent a liquidity crisis from turning into a credit crisis.
2. Marginal Funding: The RBI provides marginal funding to commercial banks to meet their short-term liquidity needs, thereby enabling them to continue lending to the real sector and maintaining economic activity.
3. Repo Operations: The RBI conducts repo operations, where it sells securities to commercial banks at a fixed rate, injecting liquidity into the system. This helps to reduce interest rates and increase money supply.
4. Reverse Repo Operations: The RBI conducts reverse repo operations, where it absorbs excess liquidity from commercial banks by buying back securities at a fixed rate. This helps to reduce money supply and manage inflationary pressures.
5. Overdraft Facility: The RBI provides an overdraft facility to commercial banks, allowing them to borrow more funds from the central bank in times of need.
6. Discounting Bills: The RBI discounts bills of exchange, i.e., accepts bills of exchange at a discount, which helps commercial banks to raise funds and maintain their liquidity.
7. Liquidity Support: The RBI provides liquidity support to financial institutions, such as non-banking finance companies (NBFCs) and housing finance companies (HFCs), by providing emergency loans or rediscounting their bills.
8. Market Intervention: In times of crisis, the RBI intervenes in the foreign exchange market to stabilize the rupee’s value and prevent a sharp depreciation.
9. Financial Stability Measures: The RBI takes measures to maintain financial stability, such as increasing cash reserve ratio (CRR) or statutory liquidity ratio (SLR) requirements for commercial banks, to reduce their lending capacity and prevent excessive credit creation.

By playing the role of a lender of last resort, the RBI aims to:

• Maintain financial stability
• Support economic growth
• Prevent systemic risk
• Maintain confidence in the financial system