BANKING AFFAIRS

Detailed explanation-1: -Loans and Advances: The Reserve Bank gives loans and advances to the Central & State Governments, commercial and co-operative banks and others in terms of Section 17 and 18 of the Reserve Bank of India Act, 1934.

Detailed explanation-2: -Similar to commercial banks, central banks hold assets (government bonds, foreign exchange, gold, and other financial assets) and incur liabilities (currency outstanding). Central banks create money by issuing banknotes and loaning them to the government in exchange for interest-bearing assets such as government bonds.

Detailed explanation-3: -Central banks lend money to commercial banks in times of crisis so that they do not collapse; this is why a central bank is called a lender of last resort. And this is one of the reasons central banks matter. At the time of the 1907 panic, the U.S. economic system lacked a central bank.

Detailed explanation-4: -Loaning liquidity to commercial banks if necessary for solvency issues – aside from the loans made between institutions in the inter-bank market, as mentioned in the previous bullet point, commercial banks can also receive liquidity from central banks in exchange for collateral, such as guaranteed public bonds.

Detailed explanation-5: -The central bank lends money to government when they are facing liquidity crunch or any type of insolvency. The central bank are the last resort to provide loans to the government against any type of collateral.