The Reserve Bank of India acts as the 'lender of last resorts'. Comment.

The Preamble to the Reserve Bank of India Act, 1934 under which Reserve Bank of India was constituted, specifies its objective as to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage. As a Banker to Banks, the Reserve Bank of India 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 thus on the economy. Similarly, Section 18 of the RBI Act facilitates the RBI to act as a 'Lender of Last Resort' permitting grant of loans and advances subject to other terms of Section 18 of the Act.