Financial Terms & Defination

Repo (Repurchase) Rate

Repo rate is the rate at which banks borrow funds from the RBI to meet the gap between the demands they are facing for money (loans) and how much they have on hand to lend.

If the RBI wants to make it more expensive for the banks to borrow money, it increases the Repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the Repo rate.

Reverse Repo Rate

This is the exact opposite of Repo rate.

The rate at which RBI borrows money from the banks (or banks lend money to the RBI) is termed the reverse Repo rate. The RBI uses this tool when it feels there is too much money floating in the banking system

If the reverse Repo rate is increased, it means the RBI will borrow money from the bank and offer them a lucrative rate of interest. As a result, banks would prefer to keep their money with the RBI (which is absolutely risk free) instead of lending it out (this option comes with a certain amount of risk)

Consequently, banks would have lesser funds to lend to their customers. This helps stem the flow of excess money into the economy

Reverse Repo rate signifies the rate at which the central bank absorbs liquidity from the banks, while Repo signifies the rate at which liquidity is injected.

Bank Rate

This is the rate at which RBI lends money to other banks (or financial institutions.

The bank rate signals the central bank’s long-term outlook on interest rates. If the bank rate moves up, long-term interest rates also tend to move up, and vice-versa.

Banks make a profit by borrowing at a lower rate and lending the same funds at a higher rate of interest. If the RBI hikes the bank rate (this is currently 6 per cent), the interest that a bank pays for borrowing money (banks borrow money either from each other or from the RBI) increases. It, in turn, hikes its own lending rates to ensure it continues to make a profit.

Call Rate

Call rate is the interest rate paid by the banks for lending and borrowing for daily fund requirement. Since banks need funds on a daily basis, they lend to and borrow from other banks according to their daily or short-term requirements on a regular basis.

CRR

Also called the cash reserve ratio, refers to a portion of deposits (as cash) which banks have to keep/maintain with the RBI. This serves two purposes. It ensures that a portion of bank deposits is totally risk-free and secondly it enables that RBI control liquidity in the system, and thereby, inflation by tying their hands in lending money

SLR

Besides the CRR, banks are required to invest a portion of their deposits in government securities as a part of their statutory liquidity ratio (SLR) requirements. What SLR does is again restrict the bank’s leverage in pumping more money into the economy.

Regarding Repo and Bank Rate:
Repo is short term whereas Bank rate is long term. Thus Repo rates are also called short term lending rate and Bank rates are called long term lending rates. Now if the Repo rate > Bank rate, it signifies that short term borrowing of funds is more expensive for commercial banks. Incidentally, this short term borrowing through Repo is required by the banks to maintain its CRR. Thus if Repo rate is increased, bank will reduce its lending to public because to maintain the CRR bank will have to now borrow from RBI at a higher Repo rate. Thus increase of Repo is done to suck liquidity from the economy.

CRR-Is the percentage of amount deducted from the total liability of the bank and which should be kept in the liquid form with the bank(say total liability of bank is 100 and amount for CRR is fixed 5%,than Rs. 5 will be kept in the liquid form ),remaining amount will be Rs.95-/

SLR- it is the percentage (fixed by the RBI) of money (left after deduction of CRR) which is invested in the government securities. (Say the Percentage fixed for the SLR is 25% than 25%of95 will be invested as the SLR

PLR .Is the percentage of amount left after deduction of CRR and SLR from the total liability of any bank, and lend to the Sectors at lower rate of interest as compare to another lending.

RR-Lending rate offered by the RBI to other banks for short term lending against the private securities.

RRR- It is the opposite of RR (means rate at which RBI offers the securities to the banks)

BR- It is the rate at which the RBI lends the loan to other banks for long term against government securities.

RR-Lending rate offered by the RBI to other banks for short term lending against the private securities.