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Saturday, April 6, 2013

Some Important Banking Concept which always have an Impact on Market..............06.04.2013

Some Important Banking Concept which always have an Impact on  Market :-

1. Bank Rate :- Bank Rate is the rate at which central bank of the country (in India it is  RBI) allows finance to commercial banks. Bank Rate is a tool, which central bank uses for  short-term purposes. Any upward revision in Bank Rate by central bank is an indication that  banks should also increase deposit rates as well as Base Rate / Benchmark Prime Lending Rate.  Thus any revision in the Bank rate indicates that it is likely that interest rates on your  deposits are likely to either go up or go down, and it can also indicate an increase or  decrease in your EMI.  

This is the rate at which central bank (RBI) lends money to other banks or financial  institutions. If the bank rate goes up, long-term interest rates also tend to move up, and  vice-versa. Thus, it can said that in case bank rate is hiked, in all likelihood banks will  hikes their own lending rates to ensure that they continue to make profit.  

Remember Bank Rate is not the same thing as Deposit Rates offered by banks for fixed deposits  and recurring deposits.   

2. Repo Rate :- Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to  the banks against securities. When the repo rate increases borrowing from RBI becomes more  expensive. Therefore, we can say that in case, RBI wants to make it more expensive for the  banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper  for banks to borrow money, it reduces the repo rate.

3. Reverse Repo rate is the rate at which banks park their short-term excess liquidity with  the RBI. The banks use this tool when they feel that they are stuck with excess funds and are  not able to invest anywhere for reasonable returns. An increase in the reverse repo rate  means that the RBI is ready to borrow money from the banks at a higher rate of interest. As a  result, banks would prefer to keep more and more surplus funds with RBI.  

Thus, we can conclude that Repo Rate signifies the rate at which liquidity is injected in the  banking system by RBI, whereas Reverse repo rate signifies the rate at which the central bank  absorbs liquidity from the banks.  

3. Marginal Standing Facility Rate : Under this scheme, Banks will be able to borrow upto 1%  of their respective Net Demand and Time Liabilities". The rate of interest on the amount  accessed from this facility will be 100 basis points (i.e. 1%) above the repo rate. This  scheme is likely to reduce volatility in the overnight rates and improve monetary  transmission.

4 comments:

  1. Hello Sir,how can i be in touch regularly with you? Need some help from you.Your contact number is not working regularly.I need to talk with you once if you feel ok.

    ReplyDelete
  2. ok, You can call on this number :- +91-8377899532.

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  3. Can I get the data of FIIs data for April month?

    ReplyDelete