Bank Rates, Banking some Important Terms

  • Bank Rate: (Current Bank Rate is: 6.0%)

Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the money supply.

  • Repo Rate: (Current Repo Rate is: 8.50%)

Repo rate is the rate at which banks borrow money from RBI. Whenever the banks have any shortage of funds they can borrow it from Reserve Bank of India (RBI). A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive.

  • Reverse Repo Rate: (Current Reverse Repo Rate is: 7.50%)

Reverse Repo Rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. RBI uses this tool when it feels there is too much money floating in the banking system. Banks are always happy to lend money to RBI since their money is in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates.

  • Marginal Standing Facility Rate:  (Current Marginal Standing Facility Rate is: 9.50%)

Under this scheme, Banks will be able to borrow upto 1% of their respective Net Demand and Time Liabilities.  The rate of interest on the amount accessed from this facility will be 100 basis points (i.e. 1%) above the repo rate. This scheme is likely to reduce volatility in the overnight rates and improve monetary transmission.

  • Cash Reserve Ratio: (Current Cash Reserve Ratio is: 6.0%)

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

  • Statutory Liquidity Ratio: (Current Statutory Liquidity Ratio is: 24.0%)

SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit. SLR is determined as the percentage of total demand and percentage of time liabilities. Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime demand. SLR is used to control inflation and propel growth. Through SLR rate tuning the money supply in the system can be controlled efficiently.

  • Inflation:

Inflation is as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. Inflation happens when there are fewer Goods and more buyers; this will result in increase in the price of Goods, since there is more demand and less supply of the goods.

  • Deflation:

Deflation is the continuous decrease in prices of goods and services. Deflation occurs when the inflation rate becomes negative (below zero) and stays there for a longer period.

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2 responses to this post.

  1. Posted by Sujithhari on November 26, 2011 at 10:27 pm

    Very useful.keep it up.

    Reply

  2. Very very ………. useful info .A lot of thanx .

    Reply

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