BANKING AFFAIRS

Detailed explanation-1: -Repo Rate: It is the interest rate at which the central bank of a country lends money to commercial banks. The central bank in India i.e. the Reserve Bank of India (RBI) uses repo rate to regulate liquidity in the economy.

Detailed explanation-2: -CRR is a reserve maintained by banks with the RBI. It is a percentage of the banks’ deposits maintained in cash form. SLR is an obligatory reserve that commercial banks must maintain themselves. It is a percentage of commercial banks’ net demand and time liabilities, maintained as approved securities.

Detailed explanation-3: -Repo Rate full form is or the term ‘REPO’ stands for ‘Repurchasing Option’ Rate. It is also known as the ‘Repurchasing Agreement’. People take loans from banks in times of financial crunch and pay interest for the same. Similarly, commercial banks and financial institutions also face a shortage of funds.

Detailed explanation-4: -Simply put, repo rate is the rate at which the RBI lends to commercial banks by purchasing securities while bank rate is the lending rate at which commercial banks can borrow from the RBI without providing any security.

Detailed explanation-5: -The key distinction between the repo and reverse repo rates is that the repo rate earns income through lending to commercial banks, whereas the reverse repo rate earns interest on funds deposited with the Reserve Bank of India.