Bank Rate

Definition of 'Bank Rate'
Definition: Bank rate is the rate charged by the central bank for lending funds to
commercial banks.
Description: Bank rates influence lending rates of commercial banks. Higher bank rate
will translate to higher lending rates by the banks. In order to curb liquidity, the central
bank can resort to raising the bank rate and vice versa
Also See: Base Rate, Call Money Rate
Definition of 'Base Rate'

Definition: Base rate is the minimum rate set by the Reserve Bank of India below which
banks are not allowed to lend to its customers.
Description: Base rate is decided in order to enhance transparency in the credit market
and ensure that banks pass on the lower cost of fund to their customers. Loan pricing
will be done by adding base rate and a suitable spread depending on the credit risk
premium
Also See: Foreign Exchange Reserves, Balance of Payment
Definition of 'Balance Of Payment'

Definition: According to the RBI, balance of payment is a statistical statement that
shows
1. The transaction in goods, services and income between an economy and the rest of
the world,
2. Changes of ownership and other changes in that economy's monetary gold, special
drawing rights (SDRs), and financial claims on and liabilities to the rest of the world, and
3. Unrequited transfers.
Description: The transactions in BOP are categorised in
a) Current account showing export and import of visibles (also called merchandise) and
invisibles (also called non-merchandise). Invisibles take into account services, transfers
and income.
b) Capital account showing a capital expenditure and income for a country. It gives a
summary of the net flow of both private and public investment into an economy. External
commercial borrowing (ECB), foreign direct investment, foreign portfolio investment, etc
form a part of capital account.
c) Errors and omissions: Sometimes the balance of payment does not balance. This
imbalance is shown in the BOP as errors and omissions. BOP is compiled using the
double entry book keeping system consisting assets and liabilities.
Also See: Foreign Exchange Reserves, Base Rate
Current RBI Bank Interest rates 2017

link bankbazar.com
Latest RBI Bank Interest Rate 2017
Indias central banking institution, The Reserve Bank of India controls the monetary policy of the
Indian currency. The RBI was established on 1 April 1935 to solve economic troubles after First
World War. Major functions of RBI include supervising banks and financial institutions, managing
exchange rates, act as bankers bank, control inflation, maintain deflation level and detect fake
currency. From time to time, RBI controls liquidity and money supply in the market and thereby
ensures overall economic growth.
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Types of interest rates fixed by RBI

Repo Rate: We all approach banks when we face a financial shortfall. Likewise, banks
approach The Central Bank, which is The Reserve Bank of India in our country if they face
financial crisis. Repo Rate or Repurchase Rate is the rate at which the RBI lends funds to
commercial banks and other financial institutions within the country. Simply put, banks borrow
funds from The Central Bank of India by selling government securities with a legal agreement to
repurchase the securities sold on a given date at a predetermined price. The rate of interest
charged by RBI while they repurchase the securities is called Repo Rate. The current Repo Rate
fixed by the RBI is 6.50% per annum.
Reverse Repo Rate: When Reserve Bank of India faces a financial crunch, they invite
commercial banks and other financial institutions to deposit their excess funds into RBI treasury
and offers them excellent interest rates. Similarly, when banks have excess funds, they voluntarily
transfer it to RBI as their money is safe and secure with them. Generally, Reverse Repo Rate is
always lesser than Repo Rate. The current Reverse Repo Rate set by The Reserve Bank of
India is 6% per annum.
Marginal Standing Facility Rate (MSF): When banks face acute financial shortage, they
can avail this special facility offered by RBI. In MSF, banks can borrow cash from RBI against their
approved government securities. This option is preferred during emergency and critical situations
only. MSF rate is always higher than Repo Rate as banks need the funds instantly. Marginal
Standing Facility Rate currently stands at 7% per annum.
Bank Rate: Bank Rate is the rate of interest charged by The Central Bank of India against
loans offered to commercial banks. Bank rate is usually higher than repo rate. Unlike repo rate,
bank rate directly affects the end user, in this case the customer, as high bank rates mean high
lending rates. When bank pay high interest rate to obtain loan from RBI, they in return charge the
customer high interest rate to break even. Also known as Discount Rate, bank rate is a powerful
tool used by the RBI to control liquidity and money supply in the market.
Cash Reserve Ratio (CRR): In India, banks are required to retain a certain percentage of
their deposits as liquid cash. However, banks prefer to deposit this liquid cash with The Reserve
Bank of India, which is equivalent to having cash in hand. The percentage of the deposits that
should be kept aside by banks is called Cash Reserve Ratio. CRR is fixed by The Reserve Bank
of India. For example: If the bank deposit amount is Rs 100 and the CRR is 10% per annum, the
liquid cash that the bank should have at all times is Rs 10. The remaining funds, which is Rs 90 in
this case can be used for lending and investment purposes. RBI has the power to determine the
lending capacity of the banks in India through CRR. They will increase CRR if they want to reduce
the amount that the banks can lend and vice versa. The current CRR is 4% per annum.
Statutory Liquidity Ratio (SLR): At the end of every business day, banks are required to
maintain a minimum ratio of their Time liabilities (when the bank has to wait to redeem their
liabilities) and Net Demand (when bank can withdraw money from these accounts immediately) in
the form of liquid assets like gold, cash and government securities. The ratio of time liabilities and
liquid assets in demand is called Statutory Liquidity Ratio or SLR. The maximum SLR that The
Reserve Bank of India can set is 40% per annum. However, the current SLR stands at 21% per
annum.
Base Rate: The Reserve Bank of India sets a minimum rate below which banks in India are
not allowed to lend to their customers. This minimum rate is called the Base Rate in banking
terms. It is the minimum rate of interest the banks are permitted to charge their customers. The
current Base Rate fixed by the RBI is 9.30% to 9.70% per annum.
Marginal Cost of Funds based Lending Rate (MCLR): RBI made changes to the existing
Base Rate system this year. They have introduced Marginal Cost of Funds based Lending Rate or
MCLR which is a new methodology to set the lending rates for commercial banks. Previously,
banks used to lend as per the Base Rate fixed by The Reserve Bank of India but with the
introduction of MCLR, banks will have to lend using rates linked to their funding costs. Simply put,
bank raises their funds through deposits, bonds and other investments. For the banks to function
smoothly, there are costs involved like salaries, rents and other bills. Considering that banks also
need to make profits every year, RBI has included the expenses of the bank and have come up
with a formula which can be used by banks to determine their lending rate. The current MCLR
(overnight) stands at 8.85 to 9.15% per annum.
Savings Deposit Rate: The interest rate earned by an account holder for the amount
maintained in their savings account is called savings deposit rate. The current savings deposit
rate is 4.00% per annum.
Term Deposit Rate: Customers who deposit money into their account and agrees to fix it till
a particular date is awarded with term deposit rate. The current term deposit rate for more than
one year tenure is 7.00% to 7.50% per annum.
In conclusion, policy rates are subjected to change without any warning as RBI constantly monitors
the supply of money in the economy and takes decisions accordingly.
Fixed rate
In a fixed rate home loan the interest rate on home loans charged by the bank is constant over the tenure of the loan. You
should go for a fixed rate only if you feel that the rate of interest prevailing in the market have touched rock bottom and the
rates can only move upwards.
Floating rate
In a floating rate home loan the home loan interest rate charged by the lender keeps changing with respect to the rates in
the market over the tenure of the loan. Normally the rate charged is on the basis of their cost of funds and the prevailing
market rates. These rates change periodically. Accordingly the tenure increases or decreases or alternatively the EMI
increases or decreases based on whether the rates move upwards or downwards

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Bank Rate

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Definition of 'Bank Rate'

Also See: Base Rate, Call Money Rate

Definition of 'Base Rate'

Definition of 'Balance Of Payment'

Description: The transactions in BOP are categorised in

Also See: Foreign Exchange Reserves, Base Rate

Current RBI Bank Interest rates 2017

Latest RBI Bank Interest Rate 2017

Types of interest rates fixed by RBI

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