DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name Staff Member : P. BADARINARAYANA
Designation : Sr. Lecturer
Branch : DCCP
Institute : Govt. Polytechnic, NELLORE
Year/Semester : VI Semester
Subject : BANKING II
Sub. Code : CCP-604(B)
Topic : Reserve Bank of India
Duration : 50 Mts.
Sub Topic : Bank Rate Policy of RBI
Teaching Aids : Animations
CCP604(B)52 1
Objective :

On completion of this period, you would be

able to
 Comprehend the Bank Rate Policy of Reserve
Bank of India.

CCP604(B)52 2
Recap:

In the last lesson we have seen the

Obligations of Schedules Banks to Reserve
Bank of India.
 Today we will see the Bank Rate Policy of
Reserve Bank of India.

CCP604(B)52 3
Bank Rate Policy of Reserve Bank

The standard rate at which the RBI is

prepared
 To buy or rediscount bills of exchange or other
eligible commercial paper is known as the Bank
Rate.
 The Bank Rate is the rate of interest which is
charged by the RBI on its advances to commercial
banks.

CCP604(B)52 4
Bank Rate Policy of Reserve Bank…

 The effect of a change in Bank Rate is to make the

cost of securing funds from the RBI cheaper or
more expensive
 Bring about changes in the structure of market
interest rates
 Serve as a signal to the money market, business
community and the public of the relaxation or
restrain in credit policy.

CCP604(B)52 5
Bank Rate Policy of Reserve Bank…
 By effecting changes in the Bank Rate the RBI
controls the volume of credit indirectly by
influencing the rate of interest as a determinant
of the volume of total loans and investment in
the country.
 When the RBI desires to restrict expansion of
credit, it raises the Bank Rate, thereby making
the credit costlier to commercial banks who
resort to borrowings from it for their lending
operations.
CCP604(B)52 6
Bank Rate Policy of Reserve Bank…

 Commercial Banks, in turn, increase their lending

rates on advances.
 A high rate of interest acts as a dissuading factor
and the borrowers consequently reduce their level
of borrowings from banks.
 Similarly, when the RBI wants to encourage the
banking system to create more credit it reduces
the Bank Rate.

CCP604(B)52 7
Bank Rate Policy of Reserve Bank…

 In order to influence the long-term interest rate,

the Reserve Bank, made active use of the Bank
Rate, which is an important interest rate to
transmit the signals of Monetary Policy.

CCP604(B)52 8
Summary :

Today we have seen the Bank Rate Policy of

Reserve Bank of India.

CCP604(B)52 9
Frequently Asked Questions
1. Explain the Bank Rate Policy of Reserve Bank of
India.

CCP604(B)52 10