What role of RBI is known as ‘lender of last resort’?
When commercial banks need more funds in order to be able to create more credit, they may approach the Central Bank for assistance instead of the market. The Central Bank provides them funds through various instruments.
This role of the RBI, specifically being ready to lend to banks at all times, is a vital function. Due to this readiness to provide financial support when needed, the central bank is known as the lender of last resort.
Explanation
The answer is derived directly from the textbook context which defines the function. It explains that when commercial banks need funds for credit creation, they turn to the Central Bank. The specific act of the RBI being ready to lend to these banks 'at all times' is what characterizes it as the 'lender of last resort'.