As reported in various newspapers many banks have revised their interest rates on home loans, car loans and other such loans. Which of the following phenomenon prompted these banks to make such an upward revision in their interest rates? [UBOI 2008]begin{enumerate}item RBI has revised the CRR and other such rates upward, which has created a liquidity crunch in the market.item Stock markets in the country are showing very high fluctuations as visible through their indexes. As a result banks have lost a huge amount of money in trading. Banks now want to recover that money by increasing their interest rates.item Banks are in need of a huge amount of money, as they have to give revised pay to all its employees.end{enumerate}

BANKING GENERAL KNOWLEDGE

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

As reported in various newspapers many banks have revised their interest rates on home loans, car loans and other such loans. Which of the following phenomenon prompted these banks to make such an upward revision in their interest rates? [UBOI 2008]

A	Only 1
B	Only 2
C	Only 3
D	All the above

Explanation:

Detailed explanation-1: -Reserve Bank of India (RBI), the central banking institution of India controls the monetary policy of the Indian currency. The key repo rate has been hiked on 7 December 2022 by the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) by 35 basis point to 6.25%.

Detailed explanation-2: -The Reserve Bank is also willing to lend ES balances to banks if this is required. The interest rate on these loans is 0.25 percentage points above the cash rate target. Banks have an incentive to borrow as little as possible at this rate, and instead prefer to borrow at the lower cash rate in the market.

Detailed explanation-3: -In other words, commercial banks borrow money from the Reserve Bank of India by selling securities or bonds with an agreement to repurchase the securities on a certain date at a predetermined price. The rate of interest charged by the central bank on the cash borrowed by commercial banks is called the “Repo Rate”.

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