CRR,SLR,MSF,BANK RATE, BASE RATE,REPO, REVERSE REPO BY MEANS OF STORY TELLING

Now is the turn for the few rates which many of us are not so sure abut:

1) Repo Rate: repo rate s d rate at which banks borrow money frm RBI. it is meant for short term borrowing. Short term bole toh upto 90 days. It is against securities. Currently it is 7.75%(check on the last day too before going to ur interviews).It is part of LAF(liquidity adjustment facility)

Now how it is used to adjust liquidity into the market or to control inflation.

Let's take an example: agar mujhe RBI se 100Rs. ka loan lena hai toh samajhiye 7.75% interest dena hoga....matlab mile mujhe Rs.92.25......ab agar RBI ne kahiye repo ko badaa ke Rs.8 kar diya toh....mere haath main bacche Rs.92....matlab Rs0.25 kam pehale se......agar yeh crore main hota toh 0.25 crore kam milta.....Means the money which bank is now left with in it's hand is lesser now. So they will be able to invest less now. Or the cost of borrowing has increased and so banks will be borrowing less money. ie they will b able to spend less and hence the liquidity is lessened or reduced. Inflation kam karne ka tarika hai paisa market se absorb karke as people will b left with less money and hence reduced Purchasing power forcing producers to reduce the cost/prices. So iss an inflation control tool.

Reverse Repo: It is just the opposite of Repo rate....means when banks have excess money then they pool it with rbi.....yaa yun keh lejiye ki wen rbi requires loan den it takes from banks at reverse repo rate. Again LAF tool.

Reverse Repo= Repo - 1%, = 7.75% -1% = 6.75%

Same kahaani....agar reverse repo rate high.....toh banks max paisa RBI ke pass pool kar denge aur market main liquidity kam ho jaayegi. Otherwise agar Reverse repo rate kam hoga toh banks paisa apne pass rakhenge aur invest karenge market main leaving the market with more money. agar inflation low hai toh yeh measure use kiya jaata hai inflation normal laane ke liye as less inflation too is very risky for economy. There should always be a balance.

Bank Rate: It s same as Repo rate(concept wise) but is used for long term means for above 90 days.Secondly securities are not required for these long term loans unlike repo.

Base Rate:This s d rate which has replaced BPLR or PLR. PLR bole toh Prime lending rate that banks ka joh ab use naa howe hai........Base rate s d minimum rate below which banks can not give loans. It is decided by banks themselves with the help of few criteria....but hv to notify rbi and hv to keep base rate same for everyone and all d loans unlike PLR.

Cash Reserve Ratio: This is the amount of money which banks have to compulsively maintain with rbi. Again agar RBI CRR increase karti hai toh it means that it wants to reduce money liquidity frm d market as banks will b left with less cash in their hand.usually lies b/w 4-5%

SLR(Statutory Liquidity Ratio) : Every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). agar RBI issey badaa deti hai toh v banks r left wid less money. These r used for liquidity control in the market.

slr bole toh statutory liquidity ratio.....jisme kuch 24-25% paisa in different forms, banks hv to keep with demselves as per d norms f RBI......take an example....maan le bhaiii Rs.100 hain X bank ke pass....ab agar rbi ne slr 24% rakha hai toh.......X ko Rs.24 toh bank ko apne hi pass rakh dene hain(means dey cannt utilise dat money/invest/give loan)...bacche Rs.76....jisko woh invest/loan etc kar/de sakta hai......ab agar rbi ne SLR badaa ke say 25% kar diya...toh bank ke pass bacche sirf Rs.75....matlab pehale se Rs.1 kam....toh market ka potential Rs.1 se kam ho gyaa.....means rbi leessened d liquidity frm market or reduced money....market main paisa kam toh logon ki purchasing power kam, purchasing power kam toh inflation apne aap hi hoga kam....kyunki agar price badenge toh log khariid naa paanvengeeee becaz f less purchasing power....Same applies in case f lowering f SLR...paisa bad jaayega....aur logon ki PP bad jaayegi...toh inflation apne aap badega....Rs.1 yahan chotta lag raha hoga.....but bak ke hazaaron crore hone ki wajah se 50 basis points yaa .50 ke change se v market pe badaa asar padta haiii......hope em clearr...

Beech main aaya inflation ka ek concept V. Kissi ne poocha tha ki aaj excess money se inflation kaise hota hai: Pasting d reply here too as it is relevant to d matter.

excess money se iflation hota hai....anoither example to explain dis..... socho market main sirf aap aur main hun(as a buyer) aur dono ke Pass Rs.100 hain.....dono dukaan pe jaate hain aur saaman kharid ke le aate hain Rs.100 ka...now if u have 110 Rs. and I hv Rs.100 only....aur socho saaman sirf 1 hi reh gya market main(as population f dis country s so high)....fir aap dukaandaar ke pass jaoge aur bologe ki woh saaman aapko hi de aur mujhe naa de.....bhale hi aapse Rs.5 ya 10 jyaada le le....ab mere pass toh Rs.100 hi hain.....toh main kaise khirdunga....dukaan daar Rs.5 jyaada leke aapko de dega saaman...badaa diyaa naa aapne price bcz f hving excess money.....dass inflationnnnn.....  

MSF(Marginal Standing Facility): this is for overnight borrowing from RBI. Almost same as repo but repo overnight nahi hota......MSF s for very short term.....No securities r required as in the case of repo. And MSF s always 1% higher than repo.

Formula:

Repo = Reverse Repo +1%

MSF = Repo + 1%

Reverse repo as on date = 6.75%(check on d last day too before attending ur interviewsas these rates change often now a days)

Post ur queries as comments guys......

Happy Learning

-- <3

Pp

TYPES OF ACCOUNTS IN INDA: CURRENT, SAVINGS AND RECURRING/FIXED DEPOSITS

Guys, starting wid d most basic things......Got a good explanation of Types of Banking accounts, Posting it here for U all too.....! ! ! ! Post your queries as comments so that we all can learn further in detail. 

1. CURRENT ACCOUNT

2. SAVINGS ACCOUNT

3. RECURRING ACCOUNT

1. What is a Current Account ? Who uses current accounts? Current Accounts in Banks

Current Accounts are basically meant for businessmen and are never used for the purpose of investment or savings. These deposits are the most liquid deposits and there are no limits for number of transactions or the amount of transactions in a day. Most of the current account are opened in the names of firm / company accounts. Cheque book facility is provided and the account holder can deposit all types of the cheques and drafts in their name or endorsed in their favour by third parties. No interest is paid by banks on these accounts. On the other hand, banks charges certain service charges, on such accounts.

Features of Current Accounts :

(a) The main objective of Current Account holders in opening these account is to enable them (mostly businessmen) to conduct their business transactions smoothly.

(b) There are no restrictions on the number of times deposit in cash / cheque can be made or the amount of such deposits;

(c) Usually banks do not have any interest on such current accounts. However, in recent times some banks have introduced special current accounts where interest (as per banks' own guidelines) is paid

(d) The current accounts do not have any fixed maturity as these are on continuous basis accounts

2. What is a Savings Bank Account ? Who uses Saving Bank Accounts ?

These deposits accounts are one of the most popular deposits for individual accounts. These accounts not only provide cheque facility but also have lot of flexibility for deposits and withdrawal of funds from the account. 

- Most of the banks have rules for the maximum number of withdrawals in a period and the maximum amount of withdrawal, but hardly any bank enforces these. However, banks have every right to enforce such restrictions if it is felt that the account is being misused as a current account. 

Till 24/10/2011, the interest on Saving Bank Accounts was regulated by RBI and it was fixed at 4.00% on daily balance basis. However, wef 25th October, 2011, RBI has deregulated Saving Fund account interest rates and now banks are free to decide the same within certain conditions imposed by RBI. 

Under directions of RBI, now banks are also required to open no frill accounts (this term is used for accounts which do not have any minimum balance requirements). Although Public Sector Banks still pay only 4% rate of interest, some private banks like Kotak Bank and Yes Bank pay between 6% and 7% on such deposits.

- From the FY 2012-13, interest earned upto Rs 10,000 in a financial year on Saving Bank accounts is exempted from tax. 

Glossary :

No frill accounts : this term is used for accounts which do not have any minimum balance requirements.

3. What are Recurring Deposit Accounts ? Who use Recurring Deposit Accounts ? or RD accounts

These are popularly known as RD accounts and are special kind of Term Deposits and are suitable for people who do not have lump sum amount of savings, but are ready to save a small amount every month. Normally, such deposits earn interest on the amount already deposited (through monthly installments) at the same rates as are applicable for Fixed Deposits / Term Deposits. *These are best if you wish to create a fund for your child's education or marriage of your daughter or buy a car without loans or save for the future.*

Under these type of deposits, the person has to usually deposit a fixed amount of money every month (usually a minimum of Rs,100/- p.m.). Any default in payment within the month attracts a small penalty. However, some Banks besides offering a fixed installment RD, have also introduced a flexible / variable RD. Under these flexible RDs the person is allowed to deposit even higher amount of installments, with an upper limit fixed for the same e.g. 10 times of the minimum amount agreed upon.

These accounts can be funded by giving Standing Instructions by which bank withdraws a fixed amount on a fixed date of the month from the saving bank of the customer (as per his mandate), and the same is credited to RD account.

Recurring Deposit accounts are normally allowed for maturities ranging from 6 months to 120 months. A Pass book is usually issued wherein the person can get the entries for all the deposits made by him / her and the interest earned. Banks also indicate the maturity value of the RD assuming that the monthly installments will be paid regularly on due dates. In case installment is delayed, the interest payable in the account will be reduced and some nominal penalty charged for default in regular payments. Premature withdrawal of accumulated amount permitted is usually allowed (however, penalty may be imposed for early withdrawals). These accounts can be opened in single or joint names. Nomination facility is also available.

The RD interest rates paid by banks in India are usually the same as payable on Fixed Deposits, except when specific rates on FDs are paid for particular number of days e.g. 500 days, 555 days, 1111 days etc i.e. these are not ending in a quarter.

INFLATION AND IT'S TYPES IN INDIA: A SUMMARY

Guyzzz em all back wid a new topic out here forcing u all to bang ur head against topics as alwayzzz......forgive me 4 dat guyzzz....but learn things juzz 4 a whilee......! ! ! !

Topic f d day is Inflation as suggested by our very own PG Guyzzzz, Do read it before scrolling down :

Definition of Inflation

According to Crowther,

"Inflation is a state in which the value of money is failing i.e. the prices are rising."

According to Coulbourn,

"Inflation is too much of money chasing too few goods."

Apne shabdon main ek pyaara sa example dunga and dat too in hindi for a change.... assume koi 1 cheez hai Rs.100 ki.... aur ek producer haiii 'A'...everything is okay and market is good....Producer A 10 samaan banaata hai aur becch deta hai 10 customers ko..... now assume dat no. f buyers(population) increase.....let's say 10 ki jagah 20 consumers/buyers aa jaate hain market main.....fir kyaaa hoga..... mere ko samaan chahiye...toh chahiyeee... baaki unnis(19) gaye tel lagaane.....Main kahunga ki producer bhaii...100 main de rahe ho sabkoo.....main 102/103 main le lunga.....Ab producer kisko dega....unn unnis(19) ko joh Rs.100 main khareed rahe hain yaa mujhko joh same cheez ke liye Rs.2/3 jyaada dene ko taiyaar haiiiii.....ofcourse mere ko hi dega uska baapu V...   

Dis s inflation....Supply remained d same and d demand increased(becaz f population in india)....! ! ! ! Price f dat product increased by Rs2/3....ab joh unna dega usko milega product warnaa tel lagaoo....  

then another producer B comes and gives d same product at Rs.95 or Rs.105..... If iss at Rs.95 then producer A toh kangaal....kyunki hur koi 95 main kharidega instead f buying it at rs100.... lut gya Producer A....Dis s deflation...or prices getting reduced.....wen dere r lot f producers(n fewer buyers) d supply increases and den dey sell dere product at price f peanuts incurring loss at there production cost......! ! ! ! ! ! ! ! If producer B sells at Rs.105 then concept f competition comes...! ! ! !

Features of Inflation

The characteristics or features of inflation are as follows :-

Inflation involves a process of the persistent rise in prices. It involves rising trend in price level.

1.Inflation is a state of disequilibrium.

2.Inflation is scarcity oriented.

3.Inflation is dynamic in nature.

4.Inflationary price rise is persistent and irreversible.

5.Inflation is caused by excess demand in relation to supply of all types of goods and services.

6.Inflation is a purely monetary phenomenon.

7.Inflation is a post full employment phenomenon.

8.Inflation is a long-term process.

Terms Related to Inflation

The important terms related to inflation are as follows :-

Deflation : Deflation is a condition of falling prices. It is just the opposite of inflation. In deflation, the value of money goes up and prices fall down. Deflation brings a depression phase of business in the economy.

Disinflation : Disinflation refers to lowering of prices through anti-inflationary measures without causing unemployment and reduction in output.

Reflation : Reflation is a situation of rising prices intentionally adopted to ease the depression phase of the economy. In reflation, along with rising prices, the employment, output and income also increase until the economy reaches the stage of full employment.

Stagflation : Paul Samuelson describes Stagflation as the paradox of rising prices with increasing rate of unemployment.

Stagnation : Stagnation in the rate of economic growth which may be a slow or no economic growth at all.

Statflation : The term 'Statflation' was coined by Dr. P.R. Brahmananda to describe the inflationary situation of India. According to Brahmananda, Rising prices in the middle of a recession is known as Statflation.

Post ur queries as comments Guyzzz..... ! ! ! ! !

-- <3

Pp