Bank Rate

Bank rate is a rate at which RBI provides the loan to commercial banks without keeping any security. In this instance, there is no repurchasing agreement signed and no collateral is involved. The RBI also arrange for short-term loans to its clients by keeping collateral which is called the repo rate. Bank rate in India is fixed by Reserve Bank of India. It is generally higher than Repo Rate as it is a significant instrument to regulate the liquidity.

Bank rate is also known as discount rate.Thus whenever a bank suffers from the problem of shortage of funds,it can borrow from the central bank of the country on the basis of monetary policy of that country.

Question for the Day on the Topic

Consider the following statements
1. Bank rate higher than Repo Rate
2. It is fixed by RBI
3. Bank rate is a rate at which RBI provides the loan to commercial banks without collateral.

Select the correct statements.

A. 1 and 2
B. 2 and 3
C. 1 and 3
D. All the above

Answer: D

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