Prime Lending Rate (PLR)
PLR or prime lending rate is a benchmark against which the lender sets his rate of interest.
Cash Reserve Ratio (CRR)
This is the portion of funds that banks have to retain with the Reserve Bank of India (RBI). When the RBI increases this percentage, the amount actually available with the commercial banks comes down. The RBI increases the CRR to draw out excessive money from the banking system and thus checks increase in prices.
Bank Rate
This is the rate at which the RBI lends to other banks. If the RBI increases its lending rate, the ripple effect will be felt across all the other banks that will hike lending rates to continue making profits.
Repo Rate
If banks face any shortfalls in funds they borrow from the central bank. Repo rate is the rate at which banks borrow money from the RBI. If the RBI reduces the repo rate, it will be cheaper for banks to borrow money. On the other hand, if the repo rate goes up, borrowing becomes expensive.
Reverse Repo Rate
The RBI can borrow money from the banks and offer them a lucrative rate of interest. This is called the reverse repo rate and banks will be glad to have their money with the RBI for a good interest rate as the money is safer here. When the reverese repo rate is increased, banks find it more attractive to have their money with the RBI, and hence money is drawn out of the system.
PLR or prime lending rate is a benchmark against which the lender sets his rate of interest.
Cash Reserve Ratio (CRR)
This is the portion of funds that banks have to retain with the Reserve Bank of India (RBI). When the RBI increases this percentage, the amount actually available with the commercial banks comes down. The RBI increases the CRR to draw out excessive money from the banking system and thus checks increase in prices.
Bank Rate
This is the rate at which the RBI lends to other banks. If the RBI increases its lending rate, the ripple effect will be felt across all the other banks that will hike lending rates to continue making profits.
Repo Rate
If banks face any shortfalls in funds they borrow from the central bank. Repo rate is the rate at which banks borrow money from the RBI. If the RBI reduces the repo rate, it will be cheaper for banks to borrow money. On the other hand, if the repo rate goes up, borrowing becomes expensive.
Reverse Repo Rate
The RBI can borrow money from the banks and offer them a lucrative rate of interest. This is called the reverse repo rate and banks will be glad to have their money with the RBI for a good interest rate as the money is safer here. When the reverese repo rate is increased, banks find it more attractive to have their money with the RBI, and hence money is drawn out of the system.
