SOMETIMES I AM CONFUSED ABOUT SOME BANKING TERMS LIKE ...........
Repo Rate, Reverse Repo Rate, CRR Rate, SLR Rate & Bank Rate
So here is some interesting facts about it.....
1. What is a Repo Rate ??????
A
: Repo rate is the rate at which our banks borrow rupees from RBI.
Whenever the banks have any shortage of funds they can borrow it from
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.
2. What is Reverse Repo Rate ???????
A:
This is exact opposite of Repo rate. 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.
3. What is CRR Rate ???????
A:
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.
4. What is SLR Rate????????
A:
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.
5. What is Bank Rate??????
A:
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.
