An overview of Banking Terms

Repo Rate
Repo rate (repurchase rate) is the rate at which our banks borrow rupees from the Central Bank(RBI). Reduction in the repo rate help banks to get money at a cheaper rate and thereby increasing liquidity in market. When the repo rate increases, borrowing from the Central Bank(RBI) becomes more expensive. Repo rate is used by monetary authorities to control inflation.

Reverse Repo Rate
Reverse Repo rate is the rate at which the Central Bank(RBI) borrows money from banks.Central Bank(RBI) uses this tool when it feels there is too much money floating in the banking system. Increase in reverse repo rate results in decreasing liquidity ad banks are attracted to invest into the Central Bank(RBI).

CRR Rate
Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with the Central Bank(RBI). If the Central Bank(RBI) decides to increase the percent of this, the available amount with the banks comes down.Central Bank(RBI) increase CRR rate to drain out the excessive money from the banks.The purpose of CRR is to ensure that banks do not run out of cash to meet the payment demands of their depositorsAlso it is used to control money supply in market. It is more effective but less flexible tool than repo rate for money control in market.

SLR Rate
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 its customers.Banks needs to maintain SLR along with CRR.
SLR rate is determined and maintained by the the Central Bank(RBI) in order to control the expansion of bank credit. SLR is determined as the percentage of total demand and percentage of time liabilities. Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime demand. SLR is used to control inflation and propel growth. Through SLR rate tuning the money supply in the system can be controlled efficiently.

Bank Rate
Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the money supply.It represents long term out look of the Central bank(RBI).

The Prime Interest Rate is the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable business customers). The rate is almost always the same amongst major banks. Adjustments to the prime rate are made by banks at the same time; although, the prime rate does not adjust on any regular basis. The Prime Rate is usually adjusted at the same time and in correlation to the adjustments of the Fed Funds Rate. The rates reported below are based upon the prime rates on the first day of each respective month. Some banks use the name "Reference Rate" or "Base Lending Rate" to refer to their Prime Lending Rate.

FII (Foreign Institutional Investor) used to denote an investor, mostly in the form of an institution. An institution established outside India, which proposes to invest in Indian market, in other words buying Indian stocks. FII's generally buy in large volumes which has an impact on the stock markets. Institutional Investors includes pension funds, mutual funds, Insurance Companies, Banks, etc.

A: FDI (Foreign Direct Investment) occurs with the purchase of the “physical assets or a significant amount of ownership (stock) of a company in another country in order to gain a measure of management control” (Or) A foreign company having a stake in a Indian Company.

The SDR (Special Drawing Rights) is an artificial currency created by the IMF in 1969. SDRs are allocated to member countries and can be fully converted into international currencies so they serve as a supplement to the official foreign reserves of member countries. Its value is based on a basket of key international currencies (U.S. dollar, euro, yen and pound sterling).


  1. Please tell which will cm in to lAF? Crr or slr?

  2. Liquidity adjustment facility...

  3. okk u mean LAF .... Repo and Reverse Repo comes under LAF ...
    Liquidity adjustment facility (LAF) is a monetary policy tool which allows banks to borrow money through repurchase agreements.The funds under LAF are used by the banks for their day-to-day mismatches in liquidity

    Under the scheme, repo auctions (for absorption of liquidity) and reverse repo auctions (for injection of liquidity) are conducted on a daily basis (except Saturdays).

  4. Thanks alot...:)

  5. Sir can u plz share sm terms about taxation. Vat exice custom etc?

  6. Sir can u plz share sm terms about taxation. Vat exice custom etc?

  7. Crr is kept in rbi but wht abt slr?

  8. I will share soon ....
    SLR is to be kept with bank itself

  9. It will be more comfortable for me to address you if you write your name as well :)

  10. Sir one of my frnd told me abt ur blog...its really very useful..I m thnkful to u and her as well...