What is a Reverse Repo Rate?

How will it affect the Bank Loan interest rates 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 this 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.

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

Relation between Inflation and Bank interest Rates

Now a days, 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.

What is Inflation?
Inflation is defined 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. Home loan rate

Home Loan Tenure Bank Name upto 5 years 10.25 12.25 9.25 9.50 12.00 14.00 10.50 11.00 11.00 13.75 10.00 11.50 10.00 11.00 10.75 xx 9.50 10.50 6~10 years 10.75 12.25 9.75 10.00 12.00 14.00 11.00 11.50 11.00 Xx 10.50 12.00 10.50 11.50 11.00 xx 10.00 11.00 More than 10 years 10.75 xx 10.00 xx 12.00 14.00 11.00 11.50 11.00 xx 10.75 xx 10.75 11.75 11.25 xx 10.25 11.25

State Bank of India Vijaya Bank ICICI Bank Federal Bank IDBI Bank Syndicate Bank Corporation Bank Canara Bank Bank of India

Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed Floating Fixed

Inflation causes increase of Interest

Inflation can be recognized as a combination of 4 factors :

The Supply of money goes up The Supply of Goods goes down Demand for money goes down Demand for goods goes up

Our Indian government gets involved in it to control the inflation by adjusting the level of money in our economical system. The most noticeable way to increase the money flow in the system is to print more currency, then the rupees will become more relative to goods.

Inflation and Global Liquidity

Factors like rates of import and export, the production cost of farms, value of dollar, price of oil (crude oil), market movements of other overseas markets cause global liquidity. In India, we can also feel the effects of global liquidity. We are not isolated from all these issues now. Due to the remarkable economic growth of India over the recent years, increase in foreign currency inflow caused the demand in multiples for many Merchandise and services in India. RBI (Reserve Bank of India) needs to control this excess liquidity in our economic system. For this, RBI increases the Repo rates which makes Costly Credits and thus increases the CRR rate (Cash Reserve Ratio). This kind of measures by RBI can only control the inflation to a certain extent only.

Globalisation
Due to Globalisation, no country are independent from Global Liquidities. This causes an important factor for the inflation in a country. A political crunch or economical downturn in a far away country can impact our money value in India

What is a CRR rate?

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.

What is a Bank Rate?

Bank rate is the rate at which RBI gives to the commercial banks. Whenever RBI increases its rates, the effect will be shown on the commercial banks. In this case, the commercial banks have to increase the interest rates for their profits.

What is a 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.

What is a 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 this 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.

What is SLR Rate?

Statutory Liquidity Ratio

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.

How is SLR determined?

SLR is determined as the percentage of total demand and percentage of time liabilities. Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime demand. .

What is the Need of SLR?

With the SLR (Statutory Liquidity Ratio), the RBI can ensure the solvency a commercial bank. It is also helpful to control the expansion of Bank Credits. By changing the SLR rates, RBI can increase or decrease bank credit expansion. Also through SLR, RBI compels the commercial banks to invest in government securities like government bonds..

SLR to Control Inflation and propel growth

SLR is used to control inflation and propel growth. Through SLR rate tuning the money supply in the system can be controlled efficiently.

What Does Basis Point - BPS Mean?

A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly used for calculating changes in interest rates, equity indexes and the yield of a fixed-income security. The relationship between percentage changes and basis points can be summarized as follows: 1% change = 100 basis points, and 0.01% = 1 basis point. So, a bond whose yield increases from 5% to 5.5% is said to increase by 50 basis points; or interest rates that have risen 1% are said to have increased by 100 basis points.