Bank Rates and Ratios

Rates

Bank Rate

It is the rate at which the Reserve Bank of India lends money to commercial banks or financial institutions. An upward revision in Bank Rate implies that banks will also increase deposit rates as well as Base Rate. To the consumer it means a variation in the interest rates on deposits and also EMI.

Repo Rate

It is the rate at which a bank sells a security to the RBI to raise money. The bank in this case agrees to buy back the security on a predetermined date with an interest rate (Repo Rate).

Reverse Repo Rate

As the name implies it is the rate at which RBI borrows money from banks. It is a monetary policy instrument which is used to control the money supply in the country.

Base Rate

The minimum rate below which banks are not allowed to lend money except in cases specified by the Reserve Bank of India. Base rate was introduced in India on 01 July 2010.

Ratios

Cash Reserve Ratio

It is the proportion of demand and time liabilities which banks in India are required to hold in the form of cash. Such cash is usually deposited with Reserve Bank of India (RBI). This minimum ratio is stipulated by the RBI and used as a tool to control liquidity in the banking system.

Statutory Liquidity Ratio

It is the minimum percentage of demand and time liabilities (deposits) that the bank has to maintain in form of gold, cash or other approved securities at the close of every business day.

Capital Adequacy Ratio

It is the ratio of bank's core capital to its risk weighted assets. It is a measure of a bank’s ability to absorb losses by calculating the ratio of capital to risk.