Option a is correct- Sterilization refers to the actions taken by a central bank to offset the impact of its foreign exchange operations on the domestic money supply. When a central bank intervenes in the foreign exchange market by buying or selling foreign currencies, it affects the domestic money supply. Open Market Operations (OMO) is one of the primary tools used by central banks, including the Reserve Bank of India (RBI), to conduct monetary policy. In OMO, the central bank buys or sells government securities (bonds) in the open market to influence the liquidity in the economy. When the RBI conducts OMO, it impacts the money supply in the economy. If the RBI buys government securities, it injects money into the system, increasing the money supply. To prevent this injection of money from creating inflationary pressures, the RBI engages in sterilization. Sterilization involves the simultaneous sale or purchase of other securities, typically treasury bills, to offset the impact of the initial open market operation.

Option b is incorrect- Oversight of settlement payment systems is not directly related to sterilization. It refers to the role of the Reserve Bank of India in supervising and ensuring the smooth functioning of payment and settlement systems in the country. Payment systems facilitate the transfer of funds between individuals, businesses, and financial institutions. While this function is important for maintaining the efficiency and stability of the financial system, it is not directly related to sterilization, which specifically deals with managing the impact of foreign exchange operations on the domestic money supply.

Option c is incorrect- Debt and cash management for the Central and State Governments involves the Reserve Bank of India’s role in managing the issuance, redemption, and servicing of government debt, as well as overseeing the cash flow operations of the government. This function is important for maintaining government finances and liquidity. However, it is not directly related to sterilization, which specifically pertains to offsetting the impact of foreign exchange operations on the domestic money supply.

Option d is incorrect- The Reserve Bank of India regulates and supervises non-banking financial institutions (NBFIs) such as non-banking financial companies (NBFCs). NBFIs play a crucial role in the financial system by providing various financial services. While the regulation of NBFIs is an important function of the RBI, it is not directly related to sterilization. Sterilization primarily deals with managing the impact of foreign exchange operations on the domestic money supply and involves specific actions such as open market operations, as explained earlier.

Source:  https://www.investopedia.com/terms/s/sterilization.asp#:~:text=Sterilization%20is%20a%20form%20of,effect%20of%20foreign%20exchange%20intervention