As a child, you have always relied upon your mother. It is she who has fed you. It is she who has cleaned you, set your hair, and sent you to school. You never had to worry about anything. This is the law of nature. The elder ones have always poured their love and affection into the younger ones, have protected them from all sorts of danger, and have helped them fly high in the sky!
Graphics1: Please create a graphical image of a caring mother and her children (include a boy and a girl)
Thus, it is always that we get help and support from the elders, the authority, the principal. Just like that the financial institutions also borrow money from the central bank, that is, the Reserve Bank of India (RBI) so that the common people can borrow money from the banks or the like financial institutes. It is this how the entire system works.
Now, you might think that why should we know about the connection between the financial institutes or banks with RBI? Well, their relationship has a connection with us too. Let’s find out what’s that!
We all know that the concept of ‘Interest’ is an old one. Previously the common people had to borrow money from the money-lenders and return the principal amount with an interest in a stipulated time. At present, we borrow money, that is, take loans, from the bank at a certain rate of interest and pay EMI every month.
Now, the money that the banks or the financial agencies give us doesn’t come from the void. They too have to borrow the amount from the Reserve Bank of India. These banks/institutions also have to return the amount at a certain rate of interest within a stipulated time. This interest that the banks have to pay is called “Repurchasing Option” or “Repurchase Agreement” or “Repo Rate”. The concerned banks can get money overnight from the RBI by providing treasury bills, gold, etc. as security. Thus, besides taking the deposits from the common people the general banks also have the option to borrow the required amount from RBI if at all necessary.
The Repo Rate also helps in the regulation of inflammation. In case of high inflammation, the Reserve Bank of India increases the Repo Rate. Thus, the commercial banks try to take fewer credits from RBI. On the other hand, in case of falling inflammation, the Repo Rate is reduced, thus, urging the commercial banks to borrow money from RBI.
Did You Know?
Before the year 2004, the Repo Rate was called “Reverse Repo Rate”. Now, the Reverse Repo Rate is the chare the commercial banks take from RBI to give credit to the banking regulator. The rate is fixed by RBI and none else. It helps in controlling inflammation.
Generally, most of us have to take home loans from the bank for buying or building our dream houses. Now, every bank has a different rate of interest. We go to the bank that best suits our interests. Now, the thing to be noted is that the banks don’t have the same rate of interest always. Why? This is due to the Repo Rate. We already know that the repo rate is monitored by the RBI. As and when the Repo Rate increases or decreases, the commercial banks also increase or decrease the rate of interest of loans. Here lies the importance of Repo Rate in the lives of common people like us!
For instance, during the outbreak of Covid-19, the economy of the entire world broke down. India’s economy too had to suffer due to this. At that time the Repo Rate was reduced by as much as 4 %. This benefit was also passed down to the common home buyers, etc. Thus, as the Repo Rate was reduced, the other banks or financial institutions also dared to reduce the interest of loans to support their clients.https://www.cnbctv18.com/economy/rbis-variable-reverse-repo-rate-move-a-great-first-step-hsbc-india-11924292.htm
Buying a home is a great challenge. Each and everything have to be measured meticulously. A brief knowledge about Repo Rate is very necessary so that you make a better and wiser decision in the choice of the bank from which you would prefer to take any loan. I have tried to give a general idea about Repo Rate. I hope you have been benefitted from it. Still, if you have any queries, you can contact the experts of Roodland India. All you need to do is to mail us at email@example.com. Our expert team is there to answer your queries and guide you in the best possible manner. Further, you can visit the Real Talks platform to enrich yourself by reading more on topics related to real estate and its market.