What is a CRR rate?

Cash reserve Ratio (CRR) is the amount of

funds that the banks have to keep with
RBI. If RBI decides to increase the
percent of this, the available amount with
the banks comes down. RBI is using this
method (increase of CRR rate), to drain
out the excessive money from the banks.
The Reserve Bank of India today hiked short-
term lending and borrowing rates and the
portion of money banks deposit with it by 25
basis points each, in a move aimed at
controlling the inflation spiral without choking
growth.
The apex bank hiked its repo, reverse repo
(overnight lending and borrowing rates) to
5.25 per cent and 3.75 per cent, respectively,
while the Cash Reserve Ratio, or the portion
of deposits banks park with RBI, to 6 per
centin line with analysts’ expectations.
 The hike in CRR, which will come into
effect from April 24, will absorb Rs. 12,500-
crore excess cash from the banking
system. Banks have already indicated that
they may not pass on the increased cost to
the borrowers immediately as liquidity still
remains sufficient in the system.
 RBI began exiting its accommodative
policy stance in January by hiking CRR to
5.75 per cent and the short term rates by
0.25 per cent each in March.
 What is PLR?
 This is a banking terminology mostly used by RBI
to issue guidelines to commercial banks.It is
minimum " Prime Lending Rate " at which credit
line is offered to prime borrowers by banks.The
current Prime Lending Rate (PLR) with effect from
Jul 13, 2009 is 14.00% p.a.
 The interest rate that commercial banks
charge their best, most credit-worthy customers.
Generally a bank's best customers consist of large
corporations.
 The rate is determined by the Federal Reserve's decision to
raise or lower prevailing interest rates for short-term
borrowing. Though some banks charge their best
customers more and some less than the official prime rate,
the rate tends to become standard across the banking
industry when a major bank moves its prime up or down.
The rate is a key interest rate, since loans to less-
creditworthy customers are often tied to the prime rate. For
example, a Blue Chip company may borrow at a prime rate
of 5%, but a less-well-established small business may
borrow from the same bank at prime plus 2, or 7%. Many
consumer loans, such as home equity, automobile,
mortgage, and credit card loans, are tied to the prime rate.
Although the major bank prime rate is the definitive "best
rate" reference point, many banks, particularly those in
outlying regions, have a two-tier system, whereby smaller
companies of top credit standing may borrow at an even
lower rate.
 “There is clear evidence of demand side pressures
building up...with the recovery now firmly in place,
we need to move in a calibrated manner in the
direction of normalizing our policy instruments,” the
RBI said.

 Announcing the policy measure, the central bank

said it would closely monitor the price situation in
the economy and would take further action as
warranted.

 The central bank, which has visibly shifted its policy

priority to inflation from growth, also warned that
with growth expected to accelerate next year,
capacity constraints are likely to put additional
pressure on prices and “there was a need that
demand side inflation does not become entrenched.”
What is repo rate by RBI of
India?
Whenever the banks have any shortage of funds
they can borrow it from RBI. Repo rate is the rate at which
our banks borrow rupees from RBI. A reduction in the repo
rate will help banks to get money at a cheaper rate. When
the repo rate increases borrowing from RBI becomes more
expensive.
The rate charged by RBI for its Repo operations is
5.75% and Reverse Repo rate is 3.25%.
When RBI lends money to bankers against
approved securities for meeting their day to day
requirements or to fill short term gap.It takes approved
securities as securityand lends money.These types of
operations are generally for overnight operations.
the repo rate is the rate that the reserve bank lends
money to commercial banks
What is reverse repo rate?
 This is the rate at which the RBI borrows funds from
banks when it wants to suck out liquidity in the
economy. It is the rate RBI offers to the banks for
parking their surplus funds.

Difference between the repo rate and reverse repo

rate?
The reverse repo rate is the rate at which banks park
their short-term excess liquidity with the Central Bank,
while the repo rate is the rate at which the Central
Bank pumps in short-term liquidity...