About Bank and Banking terms like Repo rate , Inflation
etc...
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Answer / sai laxmi
Bank rate:-
Bank rate is the rate at which RBI lends money to other banks or financial institutions or commercial banks. If bank rate is increased by RBI, then all banks will also hike their own lending rates such as deposit rates and prime lending rates etc.......Bank rate is also known as the discount rate and it is the oldest instrument of monetary policy. The bank rate policy seeks to affect both the cost and availability of credit.
CRR:-
CRR is a bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes. Banks in India are required to hold a certain proportion of their deposits in the form of cash. However, actually banks don't hold these as cash with themselves, but deposit such case with RBI, which is considered as equivalent to holding cash with themselves. These reserves are designed to satisfy withdrawal demands, and would normally be in the form of authorized currency stored in a bank vault or with RBI. The reserve ratio is sometimes used as a tool in the monetary policy, influencing the country's economy, borrowing and interest rates. CRR is also known as cash asset ratio or liquidity ratio. The RBI is empowered to vary CRR between 3% and 20% respectively.
SLR:-
Every bank is required to maintain at the close of business every day, a minimum proportion of their net demand and time liabilities as liquid assets in the form of cash, gold or approved securities. This percentage is fixed by RBI. The maximum and minimum limits for the SLR are 40% and 25% respectively.
Repo Rate:-
It is also called as repurchase rate. It is the rate at which RBI lends short term money to the banks. When the banks have any shortage of funds they can borrow it from RBI. A reduction in the repo rate will halp banks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes expensive.
Reverse Repo rate:-
Reverse repo rate is the rate at which RBI borrows money from banks. When liquidity or cash floating is excess in banks, RBI sucks it out by reverse repo by lending securities and taking out money from banks.
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Answer / kunal gupta
• Liquidity adjustment facility (LAF): A monetary policy tool which allows banks to borrow money through repurchase agreements. LAF is used to aid banks in adjusting the day to day mismatches in liquidity. LAF consists of repo and reverse repo operations.
• Repo Rate: Bank sells the security to central bank (RBI in India) to raise money. When banks sell security, banks promise to buy back the same security from RBI at a predetermined date with an interest at the rate of REPO. It is actually a repurchase agreement.
• Reverse Repo Rate: The rate at which the central bank of a country borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country
• Bank Rate: Bank rate is the rate at which RBI lends money to commercial banks for meeting shortfall for a long period without selling or buying any security.
• Marginal Standing Facility (MSF): A new scheme announced by the Reserve Bank of India (RBI) in its Monetary Policy (2011-12) and refers to the penal rate at which banks can borrow money from the central bank over and above what is available to them through the LAF window. MSF, being a penal rate, is always fixed above the repo rate. The MSF would be the last resort for banks once they exhaust all borrowing options including the liquidity adjustment facility by pledging through government securities, which has lower rate of interest in comparison with the MSF. The MSF would be a penal rate for banks and the banks can borrow funds by pledging government securities within the limits of the statutory liquidity ratio.
• Call rate: The interest rate paid by the banks for lending and borrowing for daily fund requirement. Since banks need funds on a daily basis, they lend to and borrow from other banks according to their daily or short-term requirements on a regular basis
• Cash Reserve Ratio (CRR): The amount of funds that all Scheduled Commercial Banks (SCB) excluding Regional Rural Banks (RRB) are required to maintain without any floor or ceiling rate with the central bank with reference to their total net Demand and Time Liabilities (DTL) to ensure the liquidity and solvency of Banks. The RBI is empowered to vary CRR between 3% and 20%.
• Statutory Liquidity Ratio (SLR): Besides the CRR, banks are required to invest a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities (viz. Dated securities issued up to 06.05.2011, Treasury Bills of GOI, Dated securities of the Government of India issued from time to time under the market borrowing programme and the Market Stabilization Scheme, State Development Loans (SDLs) of the State Governments issued from time to time under the market borrowing programme; and any other instrument as may be notified by the Reserve Bank of India) as a part of their statutory liquidity ratio (SLR) requirements. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). RBI can set this ratio from 0% to 40%. An increase in SLR also restricts the bank’s leverage position to pump more money into the economy.
• Base rate: The minimum rate set by the Reserve Bank of India below which banks are not allowed to lend to its customers.
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