Bank Rate

What is Bank rate? 

Bank Rate is the rate at which central bank of the country, in India it is the Reserve Bank of India (RBI), allows finance/liquidity to commercial/scheduled banks within the territory of India. RBI uses Bank Rate as a tool for short-term measures. Any upward revision in Bank Rate is an indication that banks should also increase the deposit rates as well as the Prime Lending Rate. Any revision in the Bank rate indicates more or less interest on your deposits and also an increase or decrease in your EMI.

What is Bank Rate (Non Bankers Point of View) ?

This is the rate at which 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 If the bank rate goes down, long-term interest rates also tend to move down. Thus, it can said that in case bank rate is hiked, in all likelihood banks will hikes their own lending rates to ensure and they continue to make a profit.

Present Bank Rate of RBI: 9% [As of April 1, 2014]

14 thoughts on “Bank Rate

  1. Major enthusiast of this website, quite a few your blog posts have definitely helped me out. Looking towards upgrades!

    • Repo Rate- which is rate of interest imposed by RBI on banks for giving loans. in india repo rate was introduced 1993 on the recommendation of chakarvarthy committe (1985) it is short term process

      bank rate – which is rate of interest imposed by RBI on given loans for commercial banks, which is long-run rate

  2. Sir, Please tell me what exactly difference between Repo Rate and Bank Rate.
    Mai hamesha hi in dono k bich confused rehta hu.

  3. Gayathri Kola826 says:

    repo rate and bank rates are change in what time..?

  4. how it increases an d decreases the bank rate

  5. bank rate: 8.75%

  6. please tell what is the diff b/w  BANK RATE & RIPO RTE

  7. Repo or Repurchase rate is the rate at which banks borrow funds from the RBI to meet the gap between the demand they are facing for money (loans) and how much they have on hand to lend. 

    If the 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. 

    Bank Rate 

    This is the rate at which RBI lends money to other banks (or financial institutions) 

    The bank rate signals the central bank’s long-term outlook on interest rates. If the bank rate moves up, long-term interest rates also tend to move up, and vice-versa. 

    Banks make a profit by borrowing at a lower rate and lending the same funds at a higher rate of interest. If the RBI hikes the bank rate, the interest that a bank pays for borrowing money (banks borrow money either from each other or from the RBI) increases. It, in turn, hikes its own lending rates to ensure it continues to make a profit.

  8. father of indian budget is Prasant Chandra Mohalanobis

    father of economics is Adam Smith (1723-1790)

    founder of modern economics Richard cantalin

    the father of dynamic economics Keynes (1883-1946)

  9. Then what is the difference between BANK RATE & REPO RATE… both are the short time based loans to the banks.

  10. which rate is for long term provided by RBI to the banks?

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