Commercial Banks are required to keep a certain percentage of deposits with the Central Bank as reserves. Beside Central Banks accepts deposits from Commercial Banks and gives them loan in times of need. In this way, Central Banks is banker’s bank.

Detailed Answer:

Banker's Bank-As banker's bank, the Central Bank offers loans to the Commercial Banks to tide over their financial crises. It also accepts surplus funds of the Commercial Banks as deposits. The rate at which the Central Bank offers loans to the Commercial banks is called Repo Rate (Bank Rate) and the rate at which the Central Bank accepts deposits from the Commercial Banks is called 'Reverse Repo Rate'.

While discharging its supervisory functions, the Central Bank regulates and controls credit creation activity of the Commercial Banks by fixing '2 ratios' and '2 rates' which are to be followed in practice by the Commercial Banks as a matter of legal binding. The 2 ratios are: (i) CRR (Cash Reserve Ratio), and (ii) SLR (Statutory Liquidity Ratio). The 2 rates are: (i) Repo Rate, and (ii) Reverse Repo Rate.

It is by varying these rates and ratios that the Central Bank supervises/monitors the functioning of Commercial Banks.