Good article definitely. Well, what I still fail to understand is the difference between 'bank' and 'repo' rates - both are described as the RBI lending rate. One last bit, wouldn't it be great if the common mass were to get the RBI rates. I mean, whats the point in having middle banks make money out of our laons.
RE:Bank rate & repo rate
by on Jan 31, 2007 03:19 PM Permalink
You can get reply to your query regarding difference between bank and repo rate from google.
One thing I am observing from various messages is that you people appear to be under the impression that banks borrow from RBI at lower rates and lend to borrowers at higher rates. I am affraid that is not so. The main source of funds availability for the banks for lending purpose is through deposits from the public, government and float funds from corporates. The banks borrow from RBI only for short term to bridge shortages if any. The banks have to offer competitive interest rates to attract deposits from depositors which depends on market conditions i.e., if you have Rs 10,000 spare cash for investing and if you have option to put it in say mutual funds and or as fixed deposit in bank, you may very likely go for mutual funds. You must have observed with rising interest rates, rates on deposits have also improved. If you recall the situation in early 90's you were getting as high as 14% interest on your deposits. Then housing loan interest rates were some where around 13%. Commercial lending rates were much higher say 15.5% p.a. The basic funda is lower the tenure, lower is the interest rate. If you have housing loan to be repayable in 5 years, interest rate is lower in such case than say repayment period of 10 years. Bank rate and repo rate are for borrowings of short term say 15 days to 45 days.
