Bank Rate (6.25%)
The Rate at which RBI give Long term loans to other banks known Bank Rate. Currently bank rate is 6.25%. It is collateral free loan it means banks do not need to mortgage any security in front of RBI. At this bank rate RBI give loans to Scheduled Commercial Banks only.
Long Term Loans - Any loan whose time period is more than 90 Days
Repo Rate (6%)
The rate at which RBI give short term loans to other bank and to other RBI clients like Union Government , State Government , Non-Banking Financial Institute etc. Here bank and other clients has to mortgage their government securities in front of RBI as collateral security and Bank has to sign Re-Purchase agreement with RBI too. In this agreement Banks promise RBI that he will pay his loan amount with interest and purchase his mortgage securities back from RBI.
Short term Loans - Any Loan whose time period is less than 90 days
Minimum Limit - 5 Crore
Maximum Limit - No Limit (equal to govt. securities)
Now the question arise ,what kind of Govt. Securities Bank has to mortgage ?
Ans - As we know Bank has to reserve some govt. securities as SLR. So Bank can't mortgage those securities that he already reserve under SLR. Bank has to arrange other govt securities to get loan from RBI.
Q.What if bank does not have any kind of Government Securities ?
Ans - As we know Bank has to reserve some govt. securities as SLR. So Bank can't mortgage those securities that he already reserve under SLR. Bank has to arrange other govt securities to get loan from RBI.
Q.What if bank does not have any kind of Government Securities ?
Ans. If bank does not have any govt securities then bank can mortgage 0.75% of those govt.securities that he reserve under SLR. For example Bank has maintain SLR with 100cr then bank can get loan against these securities 100crX0.75 = 75lakhs only. This is known Marginal Standing Facility. The rate of interest on MSF is 6.25%. But this type of Loan is only available for Scheduled Commercial banks Only .
Minimum Limit is - 1 CroreMaximum Limit = Only 0.75% of SLR govt securities
Reverse Repo Rate (5.75%)
At this rate RBI take short term loans from bank against govt securities. It means bank has to mortgage govt.securities in front of Banks. Interest is to be paid at 5.75%.
Relation between Bank rate, Repo rate, Reverse Reporate , MSF ?
Ans- Bank rate and MSF rate is 0.25% greater than Repo rate.
2. Reverse reporate is 0.25 % less than Repo rate.
So to controle inflation or deflation in economy RBI has to change only Repo rate. Other rates adjusted according to Repo rate.
For example If today Reporate is increased to 8% then Bank rate and MSF automatically become 8.25% and Reverse rate become 7.75%.
Relation between Bank rate, Repo rate, Reverse Reporate , MSF ?
Ans- Bank rate and MSF rate is 0.25% greater than Repo rate.
2. Reverse reporate is 0.25 % less than Repo rate.
So to controle inflation or deflation in economy RBI has to change only Repo rate. Other rates adjusted according to Repo rate.
For example If today Reporate is increased to 8% then Bank rate and MSF automatically become 8.25% and Reverse rate become 7.75%.
2.If Repo rate become 5% then Bank rate and MSF become 5.25% and reverse reporate become 4.75%
Difference between Repo rate and Bank Rate
Difference Between Repo rate and MSF
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