Consider the following statements: Statement I: The Bank Rate influences the long-term lending activities of banks and financial institutions in India. Statement II: Bank Rate is the interest rate at which the Reserve Bank of India lends short-term funds to commercial banks. Which one of the following is correct? |ForumIAS

[A] Both Statement I and Statement II are correct, and Statement II is the correct explanation of Statement I.

[B] Both Statement I and Statement II are correct, but Statement II is not the correct explanation of Statement I.

[C] Statement I is correct, but Statement II is incorrect.

[D] Statement I is incorrect, but Statement II is correct.

Answer: C

Notes:

Explanation:

The Bank Rate, as fixed by the RBI, directly affects long-term lending activities of institutions like scheduled banks, NBFCs, and cooperative banks.
The Bank Rate applies to long-term lending, not short-term funds. Short-term lending by RBI is handled through Repo Rate, MSF, and Liquidity Adjustment Facility (LAF)

Source: Indian Economy (Ramesh Singh)