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Urgent plz help me

Abhilahsa (11th) (54 Points)

09 August 2011

Dear All

Plz mujhe ye batiye ke "Base rate,Repo rate,Reverse repo rate,marginal standing facility rate" kya hota hai or iska kya use hai.

"CRR or SLR ka full form or uses"

plz mujhe breif main batiyega its urgent

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4 Replies

kamal kishor sen (STUDENT Rajasthan) (2156 Points)
Replied 09 August 2011

What is the meaning of Base Rate?

Earlier people who would borrow on a floating rate felt both amused and irritated when the interest rate on their loan was hiked even though the new borrowers got loans at cheaper rate. With the base rate mechanism coming to effect by 31st December 2010, this will no longer be the case.

Base rate is the minimum rate at which a bank can lend to its customer with added costs like product related operation cost, tenure and credit risk premium. As a result, any change in the base rate will affect new and existing borrowers for the same product, tenure and risk category.

So, now you can compare the base rate of several banks to find out the interest rate on your existing loan. You can also switch your lender as it helps you save on the cost.

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kamal kishor sen (STUDENT Rajasthan) (2156 Points)
Replied 09 August 2011

We are explaining the different rates in monetary policy 
used by RBI

Repo (Repurchase) Rate

Repo rate is the rate at which banks borrow funds from the 
RBI to meet the gap between the demand they are facing for 
money (loans) and how much they have on hand to lend. 

If the RBI wants to make it more expensive for the banks to 
borrow money, it increases the repo rate; similarly, if it 
wants to make it cheaper for banks to borrow money, it 
reduces the repo rate. 

Reverse Repo Rate

This is the exact opposite of repo rate. 

The rate at which RBI borrows money from the banks (or 
banks lend money to the RBI) is termed the reverse repo 
rate. The RBI uses this tool when it feels there is too 
much money floating in the banking system

If the reverse repo rate is increased, it means the RBI 
will borrow money from the bank and offer them a lucrative 
rate of interest. As a result, banks would prefer to keep 
their money with the RBI (which is absolutely risk free) 
instead of lending it out (this option comes with a certain 
amount of risk)

Consequently, banks would have lesser funds to lend to 
their customers. This helps stem the flow of excess money 
into the economy

Reverse repo rate signifies the rate at which the central 
bank absorbs liquidity from the banks, while repo signifies 
the rate at which liquidity is injected.

Bank Rate

This is the rate at which RBI lends money to other banks 
(or financial institutions .

The bank rate signals the central bank’s long-term outlook 
on interest rates. If the bank rate moves up, long-term 
interest rates also tend to move up, and vice-versa.

Banks make a profit by borrowing at a lower rate and 
lending the same funds at a higher rate of interest. If the 
RBI hikes the bank rate (this is currently 6 per cent), the 
interest that a bank pays for borrowing money (banks borrow 
money either from each other or from the RBI) increases. 
It, in turn, hikes its own lending rates to ensure it 
continues to make a profit. 

Call Rate

Call rate is the interest rate paid by the banks for 
lending and borrowing for daily fund requirement. Si nce 
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. 

CRR

Also called the cash reserve ratio, refers to a portion of 
deposits (as cash) which banks have to keep/maintain with 
the RBI. This serves two purposes. It ensures that a 
portion of bank deposits is totally risk-free and secondly 
it enables that RBI control liquidity in the system, and 
thereby, inflation by tying their hands in lending money

SLR

Besides the CRR, banks are required to invest a portion of 
their deposits in government securities as a part of their 
statutory liquidity ratio (SLR) requirements. What SLR does 
is again restrict the bank’s leverage in pumping more money 
into the economy.

kamal kishor sen (STUDENT Rajasthan) (2156 Points)
Replied 09 August 2011

Marginal Standing Facility Rate : 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.

In the policy statement RBI has also declared "The stance of monetary policy is, among other things, to manage liquidity to ensure that it remains broadly in balance, with neither a large surplus diluting monetary transmission nor a large deficit choking off fund flows."