Defining the Bank Rate

The Bank rate is an interest rate at which the Reserve Bank of India ( RBI ) lends money to commercial banks without any security or collateral. Unlike the Repo Rate, where short-term loans are given with collateral, the Bank Rate does not require any collateral. The RBI determines the Bank Rate in India, and it is generally higher than the Repo Rate due to its role in controlling liquidity.

There are several important economic terms/topics that are pertinent for the UPSC 2023 :

1. Repo Rate and Reverse Repo Rate
2. Statutory Liquidity Ratio (SLR)
3. Cash Reserve Ratio (CRR)
4. Marginal Standing Facility (MSF)
5. Lorenz Curve
6. Non-Performing Assets (NPAs)

How is a Bank Rate determined?

The central financial authority of a nation, which controls the money supply and banking sector, usually determines the interest rate. This determination is often done quarterly to control inflation and manage the country's exchange rates.

A change in the bank rate can have a ripple effect that impacts all aspects of a country's economy. For instance, fluctuations in the interest rate can lead to changes in stock market prices. Changes in the bank rate also affect customers as it influences the rates at which they can borrow loans.

What is the Current Bank Rate in India?

The Reserve Bank of India is responsible for setting the bank rate. While the rate is subject to change, there isn't a specific schedule for these adjustments. The changes in repo rates depend entirely on the current economic conditions.

As of March 2021, the Bank Rate stands at 4.25%, the Repo Rate at 4.00%, and the Reverse Repo Rate at 3.35%.

Get previous years’ Indian Economy questions from UPSC Mains GS 3 in the linked article.

For more UPSC related preparation materials, visit the links given in the table below:

Related Links