Types of Interest rates fixed by RBI Bank
- Repo Rate: We all approach banks when we face a financial shortfall. Likewise, banks approach The Central Bank, which is The Reserve Bank of India in our country if they face financial crisis. Repo Rate or Repurchase Rate is the rate at which the RBI lends funds to commercial banks and other financial institutions within the country. Simply put, banks borrow funds from The Central Bank of India by selling government securities with a legal agreement to repurchase the securities sold on a given date at a predetermined price. The rate of interest charged by RBI while they repurchase the securities is called Repo Rate. The current Repo Rate as fixed by the RBI is 6.00% p.a.As per the 6th bi-monthly monetary policy statement, RBI keeps the repo rate (key lending rate) unchanged at 6%. The reverse repo rate also remains unchanged at 5.75% along with the Marginal Standing Facility Rate and Bank Rate at 6.25%.
Here’s a snapshot of all the repo rate changes that have occurred since October 2005:
| Updated On | Repo Rate |
| 07 February, 2018 | 6.00% |
| 02 August, 2017 | 6.00% |
| 04 October, 2016 | 6.25% |
| 05 April, 2016 | 6.50% |
| 29 September, 2015 | 6.75% |
| 02 June, 2015 | 7.25% |
| 04 March, 2015 | 7.50% |
| 15 January, 2015 | 7.75% |
| 28 January, 2014 | 8.00% |
| 29 October, 2013 | 7.75% |
| 20 September, 2013 | 7.50% |
| 03 May, 2013 | 7.25% |
| 17 March, 2011 | 6.75% |
| 25 January, 2011 | 6.50% |
| 02 November, 2010 | 6.25% |
| 16 September, 2010 | 6.00% |
| 27 July, 2010 | 5.75% |
| 02 July, 2010 | 5.50% |
| 20 April, 2010 | 5.25% |
| 19 March, 2010 | 5.00% |
| 21 April, 2009 | 4.75% |
| 05 March, 2009 | 5.00% |
| 05 January, 2009 | 5.50% |
| 08 December, 2008 | 6.50% |
| 03 November, 2008 | 7.50% |
| 20 October, 2008 | 8.00% |
| 30 July, 2008 | 9.00% |
| 25 June, 2008 | 8.50% |
| 12 June, 2008 | 8.00% |
| 30 March, 2007 | 7.75% |
| 31 January, 2007 | 7.50% |
| 30 October, 2006 | 7.25% |
| 25 July, 2006 | 7.00% |
| 24 January, 2006 | 6.50% |
| 26 October, 2005 | 6.25% |
- Reverse Repo Rate: When Reserve Bank of India faces a financial crunch, they invite commercial banks and other financial institutions to deposit their excess funds into RBI treasury and offers them excellent interest rates. Similarly, when banks have excess funds, they voluntarily transfer it to RBI as their money is safe and secure with them. Generally, Reverse Repo Rate is always lesser than Repo Rate. The current Reverse Repo Rate as set by the apex bank is 5.75% p.a.
- Marginal Standing Facility Rate (MSF): When banks face acute financial shortage, they can avail this special facility offered by RBI. In MSF, banks can borrow cash from RBI against their approved government securities. This option is preferred during emergency and critical situations only. MSF rate is always higher than Repo Rate as banks need the funds instantly. The MSF rate currently stands at 6.25% p.a.
- Bank Rate: Bank Rate is the rate of interest charged by The Central Bank of India against loans offered to commercial banks. Bank rate is usually higher than repo rate. Unlike repo rate, bank rate directly affects the end user, in this case, the customer, as high bank rates mean high lending rates. When bank pay high-interest rate to obtain a loan from RBI, they in return charge the customer high interest rate to break even. Also known as “Discount Rate”, bank rate is a powerful tool used by the RBI to control liquidity and money supply in the market. The current Bank Rate is the same as MSF rate, i.e. 6.25% p.a.
- Cash Reserve Ratio (CRR): In India, banks are required to retain a certain percentage of their deposits as liquid cash. However, banks prefer to deposit this liquid cash with the Reserve Bank of India, which is equivalent to having cash in hand. The percentage of the deposits that should be kept aside by banks is called Cash Reserve Ratio. CRR is fixed by The Reserve Bank of India. For example: If the bank deposit amount is Rs.100 and the CRR is 10% per annum, the liquid cash that the bank should have at all times is Rs.10. The remaining funds, which is Rs.90 in this case can be used for lending and investment purposes. RBI has the power to determine the lending capacity of the banks in India through CRR. They will increase CRR if they want to reduce the amount that the banks can lend and vice versa. The current CRR is 4% p.a.
- Statutory Liquidity Ratio (SLR): At the end of every business day, banks are required to maintain a minimum ratio of their Time liabilities (when the bank has to wait to redeem their liabilities) and Net Demand (when bank can withdraw money from these accounts immediately) in the form of liquid assets like gold, cash and government securities. The ratio of time liabilities and liquid assets in demand is called Statutory Liquidity Ratio or SLR. The maximum SLR that The Reserve Bank of India can set is 40% p.a. However, the current SLR is set at 19.5% p.a.
- Base Rate: The Reserve Bank of India sets a minimum rate below which banks in India are not allowed to lend to their customers. This minimum rate is called the Base Rate in banking terms. It is the minimum rate of interest the banks are permitted to charge their customers. The new Base Rate as fixed by RBI is 8.65% to 9.45% p.a.
- Marginal Cost of Funds based Lending Rate (MCLR): RBI made changes to the existing Base Rate system this year. They have introduced Marginal Cost of Funds based Lending Rate or MCLR which is a new methodology to set the lending rates for commercial banks. Previously, banks used to lend as per the Base Rate fixed by The Reserve Bank of India but with the introduction of MCLR, banks will have to lend using rates linked to their funding costs. Simply put, bank raises their funds through deposits, bonds and other investments. For the banks to function smoothly, there are costs involved like salaries, rents and other bills. Considering that banks also need to make profits every year, RBI has included the expenses of the bank and have come up with a formula which can be used by banks to determine their lending rate. With the reduction of repo rate, some banks have reduced MCLR up to 90 basis points. The current MCLR (overnight) stands at 7.70% to 8.10% p.a. at the State Bank of India.
- Savings Deposit Rate: The interest rate earned by an account holder for the amount maintained in their savings account is called savings deposit rate. The current savings deposit rate at the country’s largest bank, the State Bank of India is 3.50% for deposits below Rs.1 crore and 4.00% p.a. for deposits above this margin.
- Term Deposit Rate: Customers who deposit money into their account and agrees to fix it till a particular date is awarded with term deposit rate. The term deposit rates for senior citizens is usually 0.5% more than that for ordinary citizens. With effect from 30 January 2018, SBI’s revised interest rates on Domestic Bulk Term deposits above Rs.10 crore ranges from 5.75% to 6.50% for ‘7-45 days’ tenor to ‘5 years and up to 10 years’ tenor, respectively. SBI’s revised interest rates for Retail Domestic Term Deposits for senior citizens below Rs.1 crore ranges from 5.75% to 6.50%, effective from 1 November 2017 (remains unchanged in 2018).
- Call Rate: It is the interest rate paid by the banks for lending and borrowing funds for a maturity period of 1 to 14 days. Call Rate is also known as the interbank borrowing rate. It deals with short-term lending between banks. However, after Lehman Brothers faced bankruptcy and the Call Rate peaked to the highest level, interbank lending stopped.