indian finacial system

7/28/2019 indian finacial system

1/66

JAIIB (Module A)

Indian Financial System


2/66

Financial System

An institutional framework existing in a country to

enable financial transactions

Three main parts

Financial assets (loans, deposits, bonds, equities, etc.)

Financial institutions (banks, mutual funds, insurance

companies, etc.)

Financial markets (money market, capital market, forex

market, etc.) Regulation is another aspect of the financial system

(RBI, SEBI, IRDA, FMC)


3/66

Financial assets/instruments

Enable channelising funds from surplus units to

deficit units

There are instruments for savers such as deposits,

equities, mutual fund units, etc. There are instruments for borrowers such as loans,

overdrafts, etc.

Like businesses, governments too raise funds

through issuing of bonds, Treasury bills, etc.

Instruments like PPF, KVP, etc. are available to

savers who wish to lend money to the government


4/66

Financial Institutions

Includes institutions and mechanisms which

Affect generation of savings by the community

Mobilisation of savings

Effective distribution of savings

Institutions are banks, insurance companies,

mutual funds- promote/mobilise savings

Individual investors, industrial and trading

companies- borrowers


5/66

Financial Markets

Money Market- for short-term funds (lessthan a year)

Organised (Banks)

Unorganised (money lenders, chit funds, etc.)

Capital Market- for long-term funds

Primary Issues Market Stock Market

Bond Market


6/66

Organised Money Market

Call money market

Bill Market

Treasury bills Commercial bills

Bank loans (short-term)

Organised money market comprises RBI,

banks (commercial and co-operative)


7/66

Purpose of the money market

Banks borrow in the money market to:

Fill the gaps or temporary mismatch of funds

To meet the CRR and SLR mandatory

requirements as stipulated by the central bank To meet sudden demand for funds arising out of

large outflows (like advance tax payments)

Call money market serves the role ofequilibrating the short-term liquidity positionof the banks


8/66

Call money market (1)

Is an integral part of the Indian money marketwhere day-to-day surplus funds (mostly ofbanks) are traded.

The loans are of short-term duration (1 to 14days). Money lent for one day is called callmoney; if it exceeds 1 day but is less than 15days it is called notice money. Money lent

for more than 15 days is term money

The borrowing is exclusively limited to banks,who are temporarily short of funds.


9/66

Call money market (2)

Call loans are generally made on a clean basis- i.e.

no collateral is required

The main function of the call money market is to

redistribute the pool of day-to-day surplus funds ofbanks among other banks in temporary deficit of

funds

The call market helps banks economise their cash

and yet improve their liquidity

It is a highly competitive and sensitive market

It acts as a good indicator of the liquidity position


10/66

Call Money Market Participants

Those who can both borrow and lend in themarket RBI (through LAF), banks andprimary dealers

Once upon a time, select financial institutionsviz., IDBI, UTI, Mutual funds were allowed inthe call money market only on the lendersside

These were phased out and call moneymarket is now a pure inter-bank market(since August 2005)


11/66

Developments in Money

Market

Prior to mid-1980s participants depended heavily onthe call money market

The volatile nature of the call money market led to

the activation of the Treasury Bills market to reducedependence on call money

Emergence of market repo and collateralisedborrowing and lending obligation (CBLO)instruments

Turnover in the call money market declined from Rs.35,144 crore in 2001-02 to Rs. 14,170 crore in2004-05 before rising to Rs. 21,725 crore in 2006-07


12/66

Bill Market

Treasury Bill market- Also called the T-Bill market These bills are short-term liabilities (91-day, 182-day, 364-

day) of the Government of India

It is an IOU of the government, a promise to pay the stated

amount after expiry of the stated period from the date ofissue

They are issued at discount to the face value and at theend of maturity the face value is paid

The rate of discount and the corresponding issue price aredetermined at each auction

RBI auctions 91-day T-Bills on a weekly basis, 182-day T-Bills and 364-day T-Bills on a fortnightly basis on behalf ofthe central government


13/66

Money Market Instruments (1)

Money market instruments are those which

have maturity period of less than one year.

The most active part of the money market is

the market for overnight call and term money

between banks and institutions and repo

transactions

Call money/repo are very short-term moneymarket products


14/66

Money Market Instruments(2)

Certificates of Deposit

Commercial Paper

Inter-bank participation certificates

Inter-bank term money

Treasury Bills

Bill rediscounting

Call/notice/term money CBLO

Market Repo


15/66

Certificates of Deposit

CDs are short-term borrowings in the form of UPN issued by allscheduled banks and are freely transferable by endorsement anddelivery.

Introduced in 1989

Maturity of not less than 7 days and maximum up to a year. FIsare allowed to issue CDs for a period between 1 year and up to 3years

Subject to payment of stamp duty under the Indian Stamp Act,1899

Issued to individuals, corporations, trusts, funds and associations They are issued at a discount rate freely determined by the

market/investors


16/66

Commercial Papers

Short-term borrowings by corporates, financial institutions,primary dealers from the money market

Can be issued in the physical form (Usance Promissory Note) ordemat form

Introduced in 1990 When issued in physical form are negotiable by endorsement

and delivery and hence, highly flexible

Issued subject to minimum of Rs. 5 lacs and in the multiple of Rs.5 lacs after that

Maturity is 7 days to 1 year Unsecured and backed by credit rating of the issuing company

Issued at discount to the face value


17/66

Market Repos

Repo (repurchase agreement) instruments enablecollateralised short-term borrowing through theselling of debt instruments

A security is sold with an agreement to repurchase it

at a pre-determined date and rate Reverse repo is a mirror image of repo and reflects

the acquisition of a security with a simultaneouscommitment to resell

Average daily turnover of repo transactions (otherthan the Reserve Bank) increased from Rs.11,311crore during April 2001 to Rs. 42,252 crore in June2006


18/66

Collateralised Borrowing and

Lending Obligation (CBLO)

Operationalised as money market instruments bythe CCIL in 2003

Follows an anonymous, order-driven and online

trading system On the lenders side main participants are mutual

funds, insurance companies.

Major borrowers are nationalised banks, PDs and

non-financial companies The average daily turnover in the CBLO segment

increased from Rs. 515 crore (2003-04) to Rs. 32,390 crore (2006-07)


19/66

Indian Banking System

Central Bank (Reserve Bank of India)

Commercial banks (222)

Co-operative banks

Banks can be classified as: Scheduled (Second Schedule of RBI Act, 1934) - 218

Non-Scheduled - 4

Scheduled banks can be classified as:

Public Sector Banks (28) Private Sector Banks (Old and New) (27)

Foreign Banks (29)

Regional Rural Banks (133)


20/66

Indigenous bankers

Individual bankers like Shroffs, Seths, Sahukars,

Mahajans, etc. combine trading and other business

with money lending.

Vary in size from petty lenders to substantial shroffs Act as money changers and finance internal trade

through hundis (internal bills of exchange)

Indigenous banking is usually family owned

business employing own working capital

At one point it was estimated that IBs met about

90% of the financial requirements of rural India


21/66

RBI and indigenous bankers (1)

Methods employed by the indigenous bankers are

traditional with vernacular system of accounting.

RBI suggested that bankers give up their trading

and commission business and switch over to thewestern system of accounting.

It also suggested that these bankers should develop

the deposit side of their business

Ambiguous character of the hundi should stop

Some of them should play the role of discount

houses (buy and sell bills of exchange)


22/66

RBI and indigenous bankers (2)

IB should have their accounts audited by certified

chartered accountants

Submit their accounts to RBI periodically

As against these obligations the RBI promised toprovide them with privileges offered to commercial

banks including

Being entitled to borrow from and rediscount bills with RBI

The IBs declined to accept the restrictions as well as

compensation from the RBI

Therefore, the IBs remain out of RBIs purview


23/66

Development Oriented

Banking

Historically, close association between banks and

some traditional industries- cotton textiles in the

west, jute textiles in the east

Banking has not been mere acceptance of depositsand lending money; included development banking

Lead Bank Scheme- opening bank offices in all

important localities

Providing credit for development of the district

Mobilising savings in the district. Service area

approach


24/66

Progress of banking in India (1)

Nationalisation of banks in 1969: 14 banks were

nationalised

Branch expansion: Increased from 8260 in 1969 to

71177 in 2006 Population served per branch has come down from

64000 to 16000

A rural branch office serves 15 to 25 villages within

a radius of 16 kms

However, at present only 32,180 villages out of 5

lakh have been covered


25/66


Deposit mobilisation:

1951-1971 (20 years)- 700% or 7 times

1971-1991 (20 years)- 3260% or 32.6 times

1991- 2006 (11 years)- 1100% or 11 times

Expansion of bank credit: Growing at 20-30%p.a. thanks to rapid growth in industrial andagricultural output

Development oriented banking: priority sectorlending


26/66


Diversification in banking: Banking has

moved from deposit and lending to

Merchant banking and underwriting

Mutual funds

Retail banking

ATMs

Internet banking Venture capital funds

Factoring


27/66

Profitability of Banks(1)

Reforms have shifted the focus of banks from

being development oriented to being

commercially viable

Prior to reforms banks were not profitable

and in fact made losses for the following

reasons:

Declining interest income Increasing cost of operations


28/66

Profitability of banks (2)

Declining interest income was for the

following reasons:

High proportion of deposits impounded for CRR

and SLR, earning relatively low interest rates

System of directed lending

Political interference- leading to huge NPAs

Rising costs of operations for banks wasbecause of several reasons: economic and

political


29/66

Profitability of Banks (3)

As per the Narasimham Committee (1991) the

reasons for rising costs of banks were:

Uneconomic branch expansion

Heavy recruitment of employees Growing indiscipline and inefficiency of staff due to trade

union activities

Low productivity

Declining interest income and rising cost of

operations of banks led to low profitability in the 90s


30/66

Bank profitability: Suggestions

Some suggestions made by NarasimhamCommittee are:

Set up an Asset Reconstruction Fund to take over

doubtful debts SLR to be reduced to 25% of total deposits

CRR to be reduced to 3 to 5% of total deposits

Banks to get more freedom to set minimum

lending rates Share of priority sector credit be reduced to 10%

from 40%


31/66

Suggestions (contd)

All concessional rates of interest should be removed

Banks should go for new sources of funds such as

Certificates of Deposits

Branch expansion should be carried out strictly oncommercial principles

Diversification of banking activities

Almost all suggestions of the Narasimham

Committee have been accepted and implemented in

a phased manner since the onset of Reforms


32/66

NPA Management

The Narasimham Committeerecommendations were made, among otherthings, to reduce the Non-Performing Assets

(NPAs) of banks To tackle this the government enacted the

Securitization and Reconstruction ofFinancial Assets and Enforcement of Security

Act (SARFAESI) Act, 2002 Enabled banks to realise their dues without

intervention of courts


33/66


34/66

The Indian Capital Market (1)

Market for long-term capital. Demand comes

from the industrial, service sector and

government

Supply comes from individuals, corporates,

banks, financial institutions, etc.

Can be classified into:

Gilt-edged market

Industrial securities market (new issues and stock

market)


35/66

The Indian Capital Market (2)

Development Financial Institutions

Industrial Finance Corporation of India (IFCI)

State Finance Corporations (SFCs)

Industrial Development Finance Corporation (IDFC) Financial Intermediaries

Merchant Banks

Mutual Funds

Leasing Companies Venture Capital Companies


36/66

Industrial Securities Market

Refers to the market for shares anddebentures of old and new companies

New Issues Market- also known as theprimary market- refers to raising of newcapital in the form of shares and debentures

Stock Market- also known as the secondarymarket. Deals with securities already issuedby companies


37/66

Financial Intermediaries (1)

Mutual Funds- Promote savings and mobilise fundswhich are invested in the stock market and bondmarket

Indirect source of finance to companies

Pool funds of savers and invest in the stockmarket/bond market

Their instruments at savers end are called units

Offer many types of schemes: growth fund, incomefund, balanced fund

Regulated by SEBI


38/66

Financial Intermediaries (2)

Merchant banking- manage and underwrite new

issues, undertake syndication of credit, advise

corporate clients on fund raising

Subject to regulation by SEBI and RBI SEBI regulates them on issue activity and portfolio

management of their business.

RBI supervises those merchant banks which are

subsidiaries or affiliates of commercial banks

Have to adopt stipulated capital adequacy norms

and abide by a code of conduct


39/66

Conclusion

There are other financial intermediaries such

as NBFCs, Venture Capital Funds, Hire and

Leasing Companies, etc.

Indias financial system is quite huge and

caters to every kind of demand for funds

Banks are at the core of our financial system

and therefore, there is greater expectationfrom them in terms of reaching out to the vast

populace as well as being competitive.


40/66

Money

Money is any good that is widely used and

accepted in transactions involving the transfer

of goods and services from one person to

another.


41/66

Types of money

Commodity money-is a good whose value

serves as the value of money. Gold coin are

example of it.

Flat money- flat money is a good, the value of

which is less than the value it represents as

money, e.g. dollar bill.

Bank money-consists of the book credit thatbank extend to their depositors. Transactions

made using cheques drawn on deposits held

at banks involve the use of bank money.


42/66

Definition of money

Crowther stats that Anything that is generallyaccepted as a means of exchange and that at

the same time acts as a measure and as a

store value. This definition covers three major function of

money that is exchange, measure of value

and store of value.


43/66

Function of Money

Prof. Kenley has divided money in the followingthree heads:

Primary functions-

(1) Medium of Exchange- to facilitate transactions. With out money all transaction would be conducted

by barter.

(2) Measure of value.


44/66

Money

Secondary functions-

Standard for deferred payments- payment that

have to be made at later stage.

Store of value- in order to be a medium ofexchange, money must hold its value over time; it

must be a store of value.

Transfer of value- it also use as a transfer of due

from one place to other.

Money as liquid assets.

Money as guarantor of solvency- e.g. bank pay

deposit to depositors.


45/66

Money

Money as a bearer of options

Unit of accounts

Contingent functions- beside other primaryand secondary functions, money also play

four contingent functions-

Distributor of joint product

Equalizer of marginal and productivity

Basic of credit

Give generic value to capital and wealth

T f


46/66

Types of money

On the basic of Accountability Legal tender-(1) limited legal tender eg. Coins (2)

Unlimited legal tender

Optional money-is a non legal tender eg. Like

cheques, Bank OD, are option money. On the basic of material used-(A) Metallic Money-

mainly Standard money or token money.

(a) Standard money- also know as fully bodied

money. It generally made through gold and silver.

(b) Tokan Money-its face value is always higher

than its intrinsic value and fully under control of

GOI. One Rupee is example of it.

P


47/66

Paper money-

(B) Paper money- it made of paper.

(1)Representative paper money-such type of money isfully backed by gold or silver and is redeemable at the

option of the holder in gold, e.g. American gold and

silver certification (1927).

(2)Convertible paper money-this type of money isconvertible into standard corns at any time at the

option of holder. 100% of backup not require.

(3) Non-convertible paper money-e.g. one rupee

(4) Flat money- its another type of non-convertiblepaper money which is generally issued without any

back of gold, silver or government securities.

It is issued by GOI under extra circumstances. E.g.

German mark issued after World War one.

4 Money and Near Money the liquidity


48/66

4. Money and Near Money- the liquidity

basic & 5. Credit money or Bank Money

(a) Liquid form of Money: Money has aqualify of general acceptability which makes

it, most liquid of assets. E.g. coins, currency

and bank money are the most liquid form of

money or 100% liquid. (2) Near- Money: Certain assets not as liquid

as money but can be easily convertible in to

money, e.g. are NSD, FD, Share etc. thistype of money can be call Near money

Quasi-Money orLiquidMoney.

5. Credit Money


49/66

Demand for Money

Transactions motive- most transactiondemand money for exchange.

Precautionary Motive- people of demand

money as precaution against future. Speculative Motive- Money is like an assets.

the demand for an assets depends on both

its ROI and opportunity cost.

Importance of Money Capitalistic


50/66

p y p

Economic

Capitalistic economic recognizes the right ofindividual property.

It is free from all government control.

All factors of production are owned, controlled& operated by private entrepreneurs.

Profit motive is prime motive in capitalistic

economic.

Money is the blood of capitalistic economic.


51/66

Importance of Money Capitalistic

Economic

Consumer can make a ration be choice ofgoods- price mechanism help in their

decision.

Production decisions are based on money. Money simplifies the distribution system-

share of remuneration.

Decision regarding saving and spending. Price mechanism regulates the flow of

investment.

Money is the basis of credit which is soul of

Importance of money in


52/66


socialistic economic

A socialist economic is one in which alleconomic activities are planned, controlled and

guided by Government or its agencies.

In this type of economic, there is no free market

as no right of property to individual.

Socialists believe that money is the root cause of

exploitation of labour by capitalist.

In this economic money would be abolished and

goods would be exchanged for goods.


53/66


socialistic economic

Guide to economic activities.

Allocation of resources. Distribution of Income

Importance of Money in a


54/66

Importance of Money in a

planned economic

It has a important role to play in a developing

planned economic. It generally followed in underdeveloped

countries.


55/66

Interest

In economics, interest is considered the price

of credit.


56/66

Interest

Interest is a fee paid on borrowed assets.

It is the price paid for the use of borrowed

money or, money earned by deposited funds.

Assets that are sometimes lent with interest

include money, shares, consumer goods

through hire purchase, major assets such as

aircraft, and even entire factories in financelease arrangements.
http://en.wikipedia.org/wiki/Feehttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Consumer_goodshttp://en.wikipedia.org/wiki/Hire_purchasehttp://en.wikipedia.org/wiki/Aircraft_financehttp://en.wikipedia.org/wiki/Finance_leasehttp://en.wikipedia.org/wiki/Finance_leasehttp://en.wikipedia.org/wiki/Finance_leasehttp://en.wikipedia.org/wiki/Finance_leasehttp://en.wikipedia.org/wiki/Finance_leasehttp://en.wikipedia.org/wiki/Aircraft_financehttp://en.wikipedia.org/wiki/Hire_purchasehttp://en.wikipedia.org/wiki/Hire_purchasehttp://en.wikipedia.org/wiki/Hire_purchasehttp://en.wikipedia.org/wiki/Consumer_goodshttp://en.wikipedia.org/wiki/Consumer_goodshttp://en.wikipedia.org/wiki/Consumer_goodshttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Fee


57/66

Interest

Interest can be thought of as "rent of money".

When money is deposited in a bank, interest

is typically paid to the depositor as apercentage of the amount deposited; when

money is borrowed, interest is typically paid

to the lender as a percentage of the amountowed.
http://en.wikipedia.org/wiki/Rentinghttp://en.wikipedia.org/wiki/Renting


58/66

Types of Interest

Simple interest

Simple interest is calculated only on the principle

amount, or on that portion of the principle amount that

remains unpaid.

For example, imagine that a credit card holder has an

outstanding balance of Rs. 2500 and that the simple

interest rate is 12.99% per annum. The interest added at

the end of 3 months would be,

and he would have to pay Rs. 2581.19 to pay off the

balance at this point.
http://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Interest_rate


59/66

Compound interest

Compound interest is very similar to simple

interest; however, with time, the difference

becomes considerably larger.

This difference is because unpaid interest is

added to the balance due.

Put another way, the borrower is charged

interest on previous interest. Assuming that no part of the principal or

subsequent interest has been paid, the debt

is calculated by the following formulas:


60/66

Compound interest

For example, if the credit card holder above

chose not to make any payments, the interest

would accumulate

So, at the end of 3 months the credit card

holder's balance would be Rs. 2582.07 and

he would now have to pay Rs. 82.07 to get it

down to the initial balance.


61/66

Fixed and floating rates

Commercial loans generally use simple interest,

but they may not always have a single interest

rate over the life of the loan.

Loans for which the interest rate does notchange are referred to as fixed rate loans.

Loans may also have a changeable rate over

the life of the loan based on some reference rate

(such as LIBOR and EURIBOR), usually plus (or

minus) a fixed margin.

These are known as floating rate, variable rate

or adjustable rate loans.

Flat Rate Loans and the Rule of
http://en.wikipedia.org/w/index.php?title=Commercial_loans&action=edit&redlink=1http://en.wikipedia.org/wiki/Simple_interesthttp://en.wikipedia.org/wiki/Fixed_interesthttp://en.wikipedia.org/wiki/Reference_ratehttp://en.wikipedia.org/wiki/LIBORhttp://en.wikipedia.org/wiki/EURIBORhttp://en.wikipedia.org/wiki/Floating_interest_ratehttp://en.wikipedia.org/wiki/Floating_interest_ratehttp://en.wikipedia.org/wiki/Floating_interest_ratehttp://en.wikipedia.org/wiki/Floating_interest_ratehttp://en.wikipedia.org/wiki/EURIBORhttp://en.wikipedia.org/wiki/LIBORhttp://en.wikipedia.org/wiki/Reference_ratehttp://en.wikipedia.org/wiki/Reference_ratehttp://en.wikipedia.org/wiki/Reference_ratehttp://en.wikipedia.org/wiki/Fixed_interesthttp://en.wikipedia.org/wiki/Fixed_interesthttp://en.wikipedia.org/wiki/Fixed_interesthttp://en.wikipedia.org/wiki/Fixed_interesthttp://en.wikipedia.org/wiki/Fixed_interesthttp://en.wikipedia.org/wiki/Simple_interesthttp://en.wikipedia.org/wiki/Simple_interesthttp://en.wikipedia.org/wiki/Simple_interesthttp://en.wikipedia.org/w/index.php?title=Commercial_loans&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Commercial_loans&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Commercial_loans&action=edit&redlink=1


62/66

Flat Rate Loans and the Rule of

78s:

Some consumer loans have been structured as flat rateloans, with the loan outstanding determined by allocating

the total interest across the term of the loan by using the

"Rule of 78s" or "Sum of digits" method.

Seventy-eight is the sum of the numbers 1 through 12,

inclusive.

The practice enabled quick calculations of interest in the

pre-computer days.

In a loan with interest calculated per the Rule of 78s, the

total interest over the life of the loan is calculated as

either simple or compound interest and amounts to the

same as either of the above methods.

Market interest rates
http://en.wikipedia.org/wiki/Rule_of_78shttp://en.wikipedia.org/wiki/Rule_of_78shttp://en.wikipedia.org/wiki/Rule_of_78shttp://en.wikipedia.org/wiki/Rule_of_78shttp://en.wikipedia.org/wiki/Rule_of_78shttp://en.wikipedia.org/wiki/Rule_of_78shttp://en.wikipedia.org/wiki/Rule_of_78s


63/66

Market interest rates There are markets for investments (which

include the money market, bond market, as wellas retail financial institutions like banks) set

interest rates.

Each specific debt takes into account the

following factors in determining its interest rate:

Opportunity cost

Inflation

Default Default Interest

Length of time

What is CRR repo and reverse
http://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Interest_rate


64/66

What is CRR, repo and reverse

repo rate?

Cash reserve Ratio (CRR) is the amount of funds that

the banks have to keep with the RBI.

If the central bank decides to increase the CRR, the

available amount with the banks comes down.

The RBI uses the CRR to drain out excessive money

from the system.

Commercial banks are required to maintain with

the RBI an average cash balance, the amount of which

shall not be less than 3% of the total of the Net Demand

and Time Liabilities (NDTL), on a fortnightly basis and

the RBI is empowered to increase the rate of CRR to

such higher rate not exceeding 20% of the NDTL.

What is Reverse Repo rate?
http://www.indiainfoline.com/Markets/News/RBI-Reverse-Repo-rate/4819173590http://www.indiainfoline.com/Markets/News/RBI-Reverse-Repo-rate/4819173590


65/66

What is Reverse Repo rate?

Reverse Repo rate is the rate at whichthe RBI borrows money from commercial banks.

Banks are always happy to lend money to the

RBI since their money are in safe hands with a

good interest.

An increase in reverse repo rate can prompt

banks to park more funds with the RBI to earn

higher returns on idle cash. It is also a tool which can be used by the RBI to

drain excess money out of the banking system.

What is a Repo Rate?
http://www.indiainfoline.com/Markets/News/RBI-Reverse-Repo-rate/4819173590http://www.indiainfoline.com/Markets/News/RBI-Reverse-Repo-rate/4819173590http://www.indiainfoline.com/Markets/News/RBI-Repo-Rate/4819165813http://www.indiainfoline.com/Markets/News/RBI-Repo-Rate/4819165813


66/66

What is a Repo Rate?

The rate at which the RBI lends money tocommercial banks is called repo rate. It is an

instrument ofmonetary policy. Whenever

banks have any shortage of funds they can

borrow from the RBI.

A reduction in the repo rate helps banks get

money at a cheaper rate and vice versa. The

repo rate in India is similar to the discountrate in the US.
http://www.indiainfoline.com/Markets/News/RBI-Repo-Rate/4819165813http://www.indiainfoline.com/Markets/News/RBI-Repo-Rate/4819165813

indian finacial system

Documents

Transcript of indian finacial system