Things to know - "Bank Rate" --- Banking Management

[SURYANARAYAN MOHAPATRA]

Dear Students

Some of you  may be getting confused with Bank Rate.

 

Bank Rate :  According to section 49 of  RBI Act,  Bank Rate is the standard rate at which the RBI is prepared 

to buy or rediscount bills of exchange or other commercial papers  eligible for purchase.

Bank rate(Discount rate)  can  affect the cost of credit and availability of credit :  Because RBI  can restrict 

the type and nature of bills eligible for rediscount.  and also  can increase or decrease its rate.  

In reality, no bank is availing credit under this window. Banks  are using Repo window for their credit requirements.

Bank rate is practically used  as  a reference rate.

Example :  If  a  bank fails to maintain CRR or SLR as per the  prescribed (statutory) requirements then  it is penalised at  3% above 

the bank rate for the first day and 5% above the bank rate for the subsequent days.

I am sure all of you are now clear about bank rate.

 

With best wishes.

Surya Mohapatra

[Varun Kashyap]

Sir but isnt this bank rate also used as base for fixing the lending
rates by the bank? How is that bought into being?

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Varun Kashyap G

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