iimportant financial information

8/4/2019 Iimportant Financial Information

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What is a Reverse Repo Rate?

How will it affect the Bank Loan interest rates

Reverse Repo rate is the rate at which Reserve Bank of

India (RBI) borrows money from banks. Banks are always happy to lend

money to RBI since their money are in safe hands with a good interest.

An increase in Reverse repo rate can cause the banks to transfer more

funds to RBI due to this attractive interest rates. It can cause the money

to be drawn out of the banking system.

Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo

Rate and Reverse Repo rate our banks adjust their lending or investment

rates for common man.

CRR Rate in India

Cash reserve Ratio (CRR) is the amount of funds that the banks have to

keep with RBI. If RBI decides to increase the percent of this, the

available amount with the banks comes down. RBI is using this method

(increase of CRR rate), to drain out the excessivemoney from the banks

Relation between Inflation and Bank interest Rates

Now a days, you might have heard lot of these terms and usage on

inflation and the bank interest rates. We are trying to make it simple for

you to understand the relation between inflation and bank interest rates

in India.

Bank interest rate depends on many other factors, out of that the major

one is inflation. Whenever you see an increase on inflation, there will be

an increase of interest rate also.


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What is Inflation?

Inflation is defined as an increase in the price of bunch of Goods and

services that projects the Indian economy. An increase in inflation

figures occurs when there is an increase in the average level of prices inGoods and services. Inflation happens when there are less Goods and

more buyers, this will result in increase in the price of Goods, since there

is more demand and less supply of the goods.

Home loan rate

Bank Name

Home Loan Tenure

upto 5 years 6~10 years

More

than 10

years

State Bank of IndiaFloating 10.25 10.75 10.75

Fixed 12.25 12.25 xx

Vijaya BankFloating 9.25 9.75 10.00

Fixed 9.50 10.00 xx

ICICI Bank

Floating 12.00 12.00 12.00

Fixed 14.00 14.00 14.00

Federal BankFloating 10.50 11.00 11.00

Fixed 11.00 11.50 11.50

IDBI BankFloating 11.00 11.00 11.00

Fixed 13.75 Xx xx

Syndicate BankFloating 10.00 10.50 10.75

Fixed 11.50 12.00 xx

Corporation BankFloating 10.00 10.50 10.75

Fixed 11.00 11.50 11.75

Canara BankFloating 10.75 11.00 11.25

Fixed xx xx xx

Bank of IndiaFloating 9.50 10.00 10.25

Fixed 10.50 11.00 11.25


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Inflation causes increase of Interest

Inflation can be recognized as a combination of 4 factors :

The Supply of money goes up The Supply of Goods goes down Demand for money goes down Demand for goods goes up

Our Indian government gets involved in it to control the inflation by

adjusting the level of money in our economical system. The most

noticeable way to increase the money flow in the system is to print more

currency, then the rupees will become more relative to goods.

Inflation and Global Liquidity

Factors like rates of import and export, the production cost of farms,

value of dollar, price of oil (crude oil), market movements of other

overseas markets cause global liquidity. In India, we can also feel the

effects of global liquidity. We are not isolated from all these issues now.

Due to the remarkable economic growth of India over the recent years,

increase in foreign currency inflow caused the demand in multiples formany Merchandise and services in India. RBI (Reserve Bank of India)

needs to control this excess liquidity in our economic system. For this,

RBI increases the Repo rates which makes Costly Credits and thus

increases the CRR rate (Cash Reserve Ratio). This kind of measures byRBI can only control the inflation to a certain extent only.

Globalisation

Due to Globalisation, no country are independent from Global

Liquidities. This causes an important factor for the inflation in a country.

A political crunch or economical downturn in a far away country can

impact our money value in India


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What is a CRR rate?

Cash reserve Ratio (CRR) is the amount of funds that the banks have to

keep with RBI. If RBI decides to increase the percent of this, the

available amount with the banks comes down. RBI is using this method

(increase of CRR rate), to drain out the excessive money from the banks.

What is a Bank Rate?

Bank rate is the rate at which RBI gives to the commercial banks.

Whenever RBI increases its rates, the effect will be shown on the

commercial banks. In this case, the commercial banks have to increasethe interest rates for their profits.

What is a Repo Rate?

Whenever the banks have any shortage of funds they can borrow it from

RBI. Repo rate is the rate at which our banks borrow rupees from RBI. A

reduction in the repo rate will help banks to get money at a cheaper rate.

When the repo rate increases borrowing from RBI becomes moreexpensive.

What is a Reverse Repo Rate?

Reverse Repo rate is the rate at which Reserve Bank of India (RBI)

borrows money from banks. Banks are always happy to lend money to

RBI since their money are in safe hands with a good interest. An increase

in Reverse repo rate can cause the banks to transfer more funds to RBI

due to this attractive interest rates. It can cause the money to be drawnout of the banking system.

Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo

Rate and Reverse Repo rate our banks adjust their lending or investment

rates for common man.


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What is SLR Rate?

Statutory Liquidity Ratio

SLR (Statutory Liquidity

Ratio) is the amount a

commercial bank needs to

maintain in the form of cash,

or gold or govt. approved

securities (Bonds) before

providing credit to itscustomers. SLR rate is

determined and maintained

by the RBI (Reserve Bank of

India) in order to control the

expansion of bank credit.

How is SLR determined?

SLR is determined as the percentage of total demandand percentage of time liabilities. Time Liabilities are

the liabilities a commercial bank liable to pay to the

customers on their anytime demand. .

What is the Need of SLR?

With the SLR (Statutory Liquidity Ratio), the RBI can ensure the

solvency a commercial bank. It is also helpful to control the expansion

of Bank Credits. By changing the SLR rates, RBI can increase ordecrease bank credit expansion. Also through SLR, RBI compels the

commercial banks to invest in government securities like government

bonds..

SLR to Control Inflation and propel growth


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SLR is used to control inflation and propel growth. Through SLR rate

tuning the money supply in the system can be controlled efficiently.

What DoesBasis Point - BPS Mean?

A unit that is equal to 1/100th of 1%, and is used to denote the change in a

financial instrument. The basis point is commonly used for calculating changes in

interest rates, equity indexes and the yield of a fixed-income security.

The relationship between percentage changes and basis points can be

summarized as follows: 1% change = 100 basis points, and 0.01% = 1 basis point.

So, a bond whose yield increases from 5% to 5.5% is said to increase by 50 basis

points; or interest rates that have risen 1% are said to have increased by 100 basis

points.

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