1. What is a Repo Rate?
A:
Repo rate is the rate at which our banks borrow rupees from RBI.
Whenever the banks have any shortage of funds they can borrow it 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.
2. What is Reverse Repo Rate?
A:
This is exact opposite of Repo rate. Reverse Repo rate is the rate at
which Reserve Bank of India (RBI) borrows money from banks. RBI uses
this tool when it feels there is too much money floating in the banking
system. Banks are always happy to lend money to RBI since their money is
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.
3. What is CRR Rate?
A:
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.3
4. What is SLR Rate?
A:
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. 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. SLR is used to control inflation and
propel growth. Through SLR rate tuning the money supply in the system
can be controlled efficiently.
5. What is Bank Rate?
A:
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.
6. What is Inflation?
A:
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 fewer 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.
7. What is Deflation?
A:
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.
8. What is PLR?
A:
The Prime Interest Rate is the interest rate charged by banks to their
most creditworthy customers (usually the most prominent and stable
business customers). The rate is almost always the same amongst major
banks. Adjustments to the prime rate are made by banks at the same time;
although, the prime rate does not adjust on any regular basis. The
Prime Rate is usually adjusted at the same time and in correlation to
the adjustments of the Fed Funds Rate. The rates reported below are
based upon the prime rates on the first day of each respective month.
Some banks use the name "Reference Rate" or "Base Lending Rate" to refer
to their Prime Lending Rate.
9. What is Deposit Rate?
A: Interest Rates paid by a depository institution on the cash on deposit.
Policy Rates:
· Bank Rate: 9.00%*
· Repo Rate: 8.00%*
· Reverse Repo Rate: 7.00%*
Reserve Ratios:
· CRR: 4.00%*
· SLR: 23.0%*
(*key rates may varry, as they are not fixed)
10. What is FII?
A:
FII (Foreign Institutional Investor) used to denote an investor, mostly
in the form of an institution. An institution established outside
India, which proposes to invest in Indian market, in other words buying
Indian stocks. FII's generally buy in large volumes which has an impact
on the stock markets. Institutional Investors includes pension funds,
mutual funds, Insurance Companies, Banks, etc.
