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bank rates: Loans and Interest rates
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bank rates: Loans and Interest rates

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a detailed description of various rates on which currency is floated in the economy

a detailed description of various rates on which currency is floated in the economy

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  • 1.
  • 2. What are Bank Rates/Loan Rates
    The Cost of Money lent by banks and financial institutions
    Also known as Interest Rates
    Includes Money Transferred between Central Bank(RBI) and commercial Banks
  • 3. Prime lending Rate
    The term originally indicated the rate of interest at which banks lent to favored customers
    It is the benchmark interest rate on the basis of which financial institutions decide the interest rates on the various loan products
  • 4. Prime lending Rate
    For example, a bank might say a loan interest rate will always be 0.5% above the PLR. So this means if the PLR increases or decreases by a certain amount, the interest rates charged on the floating rate loans offered by the bank also increase or decrease by the same amount.
  • 5. Cash Reserve Ratio (CRR)
    It is the percentage of cash deposits that commercial banks need to keep with the RBI on an everyday basis.
    The commercial banks can decide on the total volume of credit to be provided to the customers, only after maintaining the required level of Cash Reserve Ratio.
    RBI uses CRR either to drain excess liquidity or to release funds needed for the economy from time to time. Increase in CRR means that banks have less funds available and money is sucked out of circulation
  • 6. Cash Reserve Ratio (CRR
    Increasing the CRR also means banks have lesser money to lend. The RBI adjusts the CRR to change the amount of liquidity in the financial system, which helps to keep the inflation within reasonable limits. Also, when CRR is increased, the interest rates also increase as the amount of liquidity in the financial system decreases
  • 7. Presently the CRR in India is 6% w.e.f 24/04/2010
    It means that all the banks of India have to keep 6% of their Depositor's Money with them in the form of cash. This in a way ensures the solvency of banks
  • 8. Repo Rate
    This is the interest rate at which RBI lends money to the banks whenever they need to borrow funds from the RBI. When the repo rate decreases its good news for the banks as they can avail more funds at a lower interest rate and vice versa