Question

Differentiate between Bank Rate and Repo Rate.

Answer 1

Difference between bank rate and repo rate are as follows:

$\begin{array}{cc}\text{(i) Bank rate relates to the loans offered by}& \text{(i) Repo rate relates to the loans offered by}\\ \text{the RBI to the commercial banks without}& \text{the RBI to the commercial banks, NOT}\\ \text{any collateral (security for purpose of loans).}& \text{without collateral. The securities are}\\ & \text{pledged as a security for the loans.}\\ \text{(ii) Bank rate does not allow any facility of}& \text{(ii) Repo rate allows for the repurchase of securities.}\\ \text{repurchase of securities. The bank rate is}& \text{The holder of securities can repurchase}\\ \text{simply the Rate of Discount.}& \text{them at a later date. Therefore, repo rate is}\\ & \text{also called the Repurchase Rate.}\\ \text{(iii) Bank rate relates to borrowings by the}& \text{(iii) Repo rate relates to short-term borrowings}\\ \text{commercial banks to cope with their}& \text{by the commercial banks.}\\ \text{immediate cash-crunch (short-term).}& \end{array}$