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Madhvi Bhatnagar
Asst. Professor
Department of Management
Aishwarya College of Education
0hat are Bank Rates / Lending
Rates?
£ The Cost of Money lent by banks and
financial institutions
£ It is 6% at present
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
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.
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
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
Cash Reserve Ratio (CRR)
£ Presently the CRR in India is 6% w.e.f
24/04/2010
THANKS