Banking terms CRR SLR REPO BANK RATE

Here we will try to make you understand about these banking terms,which are frequently used and we find them little confusing, lets enter the world of banking!

LAF

LIQUIDITY ADJUSTMENT FACILITY, this is term of monitory policy, this is used by central bank (RBI) to help and assist banks, by two ways
Repo Rate and Reverse Repo Rate

Repo rate 

Bank borrow money from central bank (RBI), for short term, ranging from 7 days to 15 days.
Repo rate is derived from term “Repurchase Option”, origin from USA.
Current repo rate is 6.50%.
Repo rate is used by RBI to control inflation, the tight and high Repo rate means, cost borrow will rise for banks and hence flow of capital will be regulated, and by this indirectly inflation will be controlled.

Reverse Repo rate

In this case, RBI borrows money from banks, but at lower rate than repo rate, its an monitory policy to control flow of capital in market, again it is used to control inflation. 
Current Reverse Repo rate is 6%.

Bank rate 

Bank rate are determined by the banks, it is higher than repo rate rate, about 1% higher than repo rates.
It is a long term rate.
Current bank rate is 7.75%.

CRR

Cash reserve ratio.
Share of liquid resources, each bank have to keep it as cash reserve with central bank (RBI).
No interest is paid for this by RBI.
Current CRR rate, 4%.

SLR

Statuary liquidity ratio, a liquid reserve.
Mandatory to keep it, in form of gold or in form of government security.
It is kept within banks, not to submit with RBI.
But it should be kept.
Current SLR rate,21.50%.






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