Bank rate is the rate at which the RBI extends credit to the:

Question

Bank rate is the rate at which the RBI extends credit to the:

1. A. Government of India
2. B. Foreign countries
3. C. Commercial Banks (Correct answer)
4. D. State Governments

Correct Answer

Option C — Commercial Banks

Detailed Solution & Explanation

The correct answer is Commercial Banks.

Key Points

• The Bank Rate is the rate at which the Reserve Bank of India (RBI) extends credit to commercial banks by rediscounting their eligible bills of exchange.
• It is a long-term monetary policy tool.

Additional Information

• The bank rate is the rate at which the RBI lends to commercial banks without collateral, historically by rediscounting bills; it is now aligned with the MSF rate.
• Distinguish it from the repo rate, which is lending against government securities and is the RBI's main policy tool, and the reverse repo, at which the RBI absorbs liquidity.
• Quantitative tools also include the CRR and SLR; qualitative tools include margin requirements and moral suasion.
• Policy rates are set by the six-member Monetary Policy Committee, which targets CPI inflation of 4% ± 2%.