GK
BANKING AWARENESS AND SEBI
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
increase in cost of borrowing by banks from RBI
|
|
|
increase in cost of loans to borrowers from banks
|
|
|
reduction in cost of borrowing by banks from RBI
|
|
|
reduction of cost to borrowers on loans from banks
|
Detailed explanation-1: -A decline in the repo rate can lead to the banks bringing down their lending rate. This can prove to be beneficial for retail loan borrowers. However, to bring down the loan EMIs, the lender has to reduce its base lending rate.
Detailed explanation-2: -Since the Repo rate is hiked the banks will now have to pay a higher amount of interest to the RBI which in turn shall be collected from the retail/ corporate borrowers of the banks. This would result in higher interest outflow on loans taken from the banks. Thus the loans in general will become costlier by 1-2%."
Detailed explanation-3: -On the other hand, a slash in the repo rate makes loans cheaper and reduces the returns on deposits. So, the customers prefer to keep the money with them instead of the banking system. This increases the money at disposal and increases the demand in the economy. With a constant supply, the prices of products shoot up.