Correct Option (c):
Open Market Operations (OMO) are a primary monetary policy tool employed by the Reserve Bank of India (RBI). These operations involve the purchase and sale of government securities (G-secs) and treasury bills in the open market. The primary objective of OMO is to regulate liquidity in the banking system and influence money supply. When the RBI buys government securities, it injects liquidity into the system, increasing the money supply. Conversely, when the RBI sells government securities, it absorbs liquidity from the system, thereby reducing the money supply. This mechanism helps the RBI manage short-term interest rates and achieve its monetary policy objectives, such as controlling inflation or promoting economic growth.
Incorrect Options:
- Option (a): Borrowing by scheduled banks from the RBI typically occurs through facilities like the Repo Rate window or the Marginal Standing Facility (MSF), where banks pledge government securities as collateral to obtain short-term funds. This is distinct from Open Market Operations, which involve outright buying or selling of securities.
- Option (b): Lending by commercial banks to industry and trade represents a core function of commercial banking, facilitating credit flow in the economy. While influenced by the overall monetary policy environment, this activity is not an Open Market Operation conducted by the RBI.
- Option (d): Option (c) accurately defines Open Market Operations, rendering this option incorrect.