What is Repo rate,reverse repo rate,CRR,SLR,MCLR,NPA,LAF and Bank rate this is what I am going to explain you easily in Hindi
When a commercial bank goes through financial crisis, they approach Reserve Bank of India. The interest at which bank borrows funds from RBI by selling their securities and bonds is called “Repo Rate”. In fact the Repo full form is repurchase agreement. In other words, it is simply the rate at which RBI lends funds to commercial banks when they are facing a financial crunch and are unable to take care of their expenses.
In this case, a repurchasing agreement is signed by both the parties stating that the securities will be repurchased on a given date at a predetermined price.
This is one of the powerful tool to control liquidity, money supply and inflation level. For example if country economy needs less money supply RBI increases the Repo rate making it difficult to borrow money.
The rate of interest charged by the central bank on the loans they have extended to commercial banks and other financial institutions is called “Bank Rate”. There is no repurchasing agreement signed, no securities sold or collateral involved. Banks borrow funds from the RBI and lends the money to their customers at a higher interest rate, thus, making profits.
Reverse Repo Rate
Reverse Repo Rate is the interest rate offered by RBI to banks who deposit into their treasury. When commercial banks generate excess funds, they choose to deposit it in RBI which is safer than lending it to their account holders or other companies. The rate of interest earned by depositing money in RBI is called reverse repo rate.
There may be circumstances when RBI needs money and asks commercial banks to come and give money on the basis of Reverse Repo Rate. So it generates good profit to the banks.
Main objective of repo rate is to deal with deficiency of funds. Whereas, reverse repo rate deals with liquidity in the economy.
Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI. If the central bank decides to increase the CRR, the available amount with the banks decreases. The RBI uses the CRR to drain out excessive money from the system.
Statutory liquidity ratio (SLR) is the Indian government term for reserve requirement that the commercial banks in India require to maintain in the form of gold, government approved securities before providing credit to the customers.
SLR is determined by a percentage of total demand and time liabilities.
Time Liabilities refer to the liabilities which the commercial banks are liable to pay to the customers after a certain period mutually agreed upon, and demand liabilities are such deposits of the customers which are payable on demand.
Example of time liability is a six month fixed deposit which is payable on demand only after six months.
Example of demand liability is a deposit maintained in saving account or current account that is payable on demand through a withdrawal form such as a cheque, internet banking etc.
Marginal standing facility rate is a window for banks to borrow from Reserve Bank of India in emergency situation when inter-bank liquidity dries up completely. Banks borrow from the central bank by pledging government securities at a rate higher than the repo rate under liquidity adjustment facility(LSF)
Liquidity adjustment facility (LAF) is 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
Marginal cost of funds based lending rate (MCLR)
The marginal cost of funds based lending rate (MCLR) refers to the minimum interest rate of a bank below which it cannot lend, except in some cases allowed by the RBI. Earlier loans were given as part of Base Rates.
Non-Performing Asset (NPA) is a loan or an advance where its interest and /or instalment of principal remain overdue for a period of time. Generally NPA refers to an asset which is not producing income.
All Rate in Real time can be checked here: https://www.rbi.org.in/home.aspx
Disclaimer: All data has been taken for informative and education purposes.
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