What’s the difference between a bank rate and a repo rate?
Home purchasers are frequently informed on how the Reserve Bank of India’s (RBI) repo rate drop may affect home loan interest rates. Whenever the banking regulator lowers the bank rate, they can hear precisely the same thing spoken. It might cause people to mix up the phrases bank rate and repo rate.
Repo rate vs. bank rate
The repo rate and the bank rate are two types of interest rates that the Reserve Bank of India (RBI) charges regulated banks in India to lend them money. The banking regulator in India has the authority to make loans to banks with or without the offering of assets and security. The disparity between both the bank rate and the repo rate is due to this reason.
The bank rate and repo rate are short-term lending rates that the RBI changes on a regular basis to keep credit flowing in the market.
What is the current bank rate?
So when borrower bank will not provide any security against by the loan, the interest rate charged by the RBI is known as the bank rate. The bank rate, commonly referred as the discount factor, enables banks to borrow money from the RBI without backing it up any collateral or security. This eliminates the need for them to sign a buyback arrangement with the central bank. Banks are currently charged a 4.25 percent bank rate by the RBI when lending funds.
What exactly is a repo rate?
The repo rate is the interest rate that the RBI charges banks on loans for where they provide collateral. The RBI and the borrower bank execute a buyback contract because there is a security involved. The bank undertakes to repurchase the securities or bonds provided as security on a specific date and at a defined price under this leveraged buyout.
Banks are currently charged a 4% repo rate by the RBI when lending funds.
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