In India, the central bank's function as the 'lender of last resort' usually refers to which of the following? 1. Lending to trade and industry bodies when they fail to borrow from other sources 2. Providing liquidity to the banks having a temporary crisis 3. Lending to governments to finance budgetary deficits Select the correct answer using the code given below.

Explicitly defines RBI's 'lender of last resort' role as being ready to lend to commercial banks when they need funds to create credit.

A student could extend this rule by noting that 'lender of last resort' is described here as a bank-to-bank function, so to test the statement they should check whether RBI's statutory/practical lender-of-last-resort operations are ever directed at non-bank trade/industry bodies.

Explains RBI provides short-term loans/advances to banks, supplies emergency liquidity to solvent banks against collateral, and limits such assistance to when market/RBI facilities are exhausted.

Use this pattern (assistance is collateralised and bank-focused) to infer that similar emergency lending to trade/industry would be atypical unless those bodies operate as regulated financial intermediaries or have explicit collateral arrangements and statutory authority.

States RBI is 'banker to the banks' and 'lender of last resort', meaning in times of crisis scheduled commercial banks approach the RBI for assistance.

A student could contrast this targeted description (scheduled commercial banks) with the claim about trade/industry bodies to suspect the latter is outside the standard lender-of-last-resort remit and seek statutory or historical examples.

Notes RBI monitors that banks lend to traders, small industries and borrowers, implying RBI's role in supervising credit allocation but through banks rather than by directly lending to businesses.

A student could use this to argue RBI influences credit to trade/industry indirectly (via banks), so check whether RBI directly extends emergency loans to such bodies or instead uses banks as the channel.

Historical note that before RBI existed, Imperial Bank performed many central-bank-like functions, and later policy sought to correct banks' bias toward trade/large firms—which highlights central bank focus on banking system and mediated credit.

Extend by considering that central-bank functions evolved to regulate banks' lending; thus, a student could examine whether RBI historically/legally stepped outside banking-system interventions to lend directly to industry.