Banking terminology

Policy Rates

Bank Rate- 6.0%

Repo Rate- 4.75%
Reserve Repo Rate- 3.25%

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 banksand other
financial intermediaries. Changes in the bank rate are often used by central banks to
control the money supply.

Repo Rate, Whenever the banks have any shortage of funds they can borrow it from
RBI. Repo rate is the rate at which our banks borrow rupees 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.

Difference between Bank Rate and Repo Rate

While repo rate is a short-term measure, i.e. applicable to short-term loans and used for
controlling the amount of money in the market, bank rate is a long-term measure and is
governed by the long-term monetary policies of the governing bank concerned.

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.

Current bank rate at which RBI lends to Banks is 6%.

Repo rate whenever the banks have any shortage of funds they can borrow it from RBI.
Repo rate is the rate at which our banks borrow rupees 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.

Current repo rate is 4.75%

The Reverse repo rate is the rate at which the RBI borrows from the banks, while the
bank rate is the rate at which the banks borrow from the RBI

Reverse Repo Rate, Reverse Repo rate is the rate at which Reserve Bank of India (RBI)
borrows money from banks. Banks are always happy to lend money to RBI since their
money are 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 these attractive interest rates. It can cause
the money to be drawn out of the banking system.

Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse
Repo rate our banks adjust their lending or investment rates for common man

Reserve Ratios

CRR- 5.75%

SLR-25%
CRR Rate in India, 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.

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.

Exchange Rates
INR / 1 USD : 46.3400
INR / 1 Euro : 64.3200
INR / 100 Jap. YEN : 51.3700
INR / 1 Pound Sterling : 73.9077

Inflation in India

Inflation is as an increase in the price of bunch of Goods and services that projects the
Indian economy. An increase in inflation figures occurs when there is an increase in the
average level of prices in Goods and services. Inflation happens when there are less
Goods and more buyers, this will result in increase in the price of Goods, since there is
more demand and less supply of the goods.

Relation between Inflation and Bank interest Rates

Now a day, you might have heard lot of these terms and usage on inflation and the bank
interest rates. We are trying to make it simple for you to understand the relation between
inflation and bank interest rates in India.

Bank interest rate depends on many other factors, out of that the major one is inflation.
Whenever you see an increase on inflation, there will be an increase of interest rate also.

Deflation

Deflation is the continuous decrease in prices of goods and services. Deflation occurs when the
inflation rate becomes negative (below zero) and stays there for a longer period.

What are the effects of Deflation

During deflation the price of goods and services is falling and consumers will tend to delay their
purchases until prices fall further. This will cause for a lower production, lower wages and
demand which will lead to further decrease in prices. This is known as deflationary spiral.

Index of Industrial Production (IIP) - Indicator for India Inc’s growth

IIP number or IIP data (Index of Industrial Production) is a measurement which

represents the status of production in the industrial sector for a given period of time
compared to a reference period of time. IIp number is one of the best statistical data,
which helps us to measure the level of industrial activity in Indian economy. Please note
that IIP data is a short-term indicator of our industrial growth till the actual results
from Annual Survey of Industries (ASI) is published. IIP data is a very important
indicator to the Government for planning purposes and is also used by various
organisations like Industrial Associations, Research Institutes, Financial Institues and
Academicians.