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Financial Rates

Financial Rates

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Published by: santosh0123 on Sep 19, 2009
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CRR Rate in India
Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBIdecides to increase the percent of this, the available amount with the banks comes down. RBI isusing this method (increase of CRR rate), to drain out the excessive money from the banks.
What is Inflation?
Inflation is defined as an increase in the price of bunch of Goods and services that projects theIndian economy. An increase in inflation figures occurs when there is an increase in the averagelevel of prices in Goods and services. Inflation happens when there are less Goods and more buyers, this will result in increase in the price of Goods, since there is more demand and lesssupply of the goods.
Relation between Inflation and Bank interest Rates
 Now a days, you might have heard lot of these terms and usage on inflation and the bank interestrates. We are trying to make it simple for you to understand the relation between inflation and bank interest rates in India.Bank interest rate depends on many other factors, out of that the major one is inflation.Whenever you see an increase on inflation, there will be an increase of interest rate also.
Statutory Liquidity RatioSLR 
(Statutory Liquidity Ratio) is the amount a commercial bank needs tomaintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by theRBI (Reserve Bank of India) in order to control the expansion of bank credit.
How is SLR determined?
SLR is determined as the percentage of total demand and percentage of timeliabilities. Time Liabilities are the liabilities a commercial bank liable to pay to thecustomers on their anytime demand. .
What is the Need of SLR?
With the SLR (Statutory Liquidity Ratio), the RBI can ensure the solvency acommercial bank. It is also helpful to control the expansion of Bank Credits. Bychanging the SLR rates, RBI can increase or decrease bank credit expansion. Alsothrough SLR, RBI compels the commercial banks to invest in government securitieslike government bonds..
SLR to Control Inflation and propel growth
 
SLR is used to control inflation and propel growth. Through SLR rate tuning the money supplyin the system can be controlled efficiently.Bank rate, also referred to as the discount rate, is therate of interest which acentral bank charges on the loans and advances that it extends tocommercial banksand other financial intermediaries.Changes in the bank rate are often used by central banks to control the money supply.
Capital Adequacy Ratio - CAR
A measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted creditexposures.
Also known as "Capital to Risk Weighted Assets Ratio (CRAR)."Investopedia explains
Capital Adequacy Ratio - CAR
This ratio is used to protect depositors and promote the stability and efficiency of financialsystems around the world.Two types of capital are measured: tier one capital, which can absorb losses without a bank  being required to cease trading, and tier two capital, which can absorb losses in the event of awinding-up and so provides a lesser degree of protection to depositors.
Prime Rate or Prime Lending Rates (PLR)
Prime rate or Prime lending rates (PLR) refer to interest rates charged by commercial banks for their most
credit-worthy customers
. Generally credit-worthy customers consist of 
largecorporations
.The rate is a key interest rate, since loans to less-creditworthy customers are often tied to a highinterest rate. For example, a “Company A ” (most credit-worthy customer) may borrow at a prime rate of 5%, but a less-well-established “Company B” may borrow from the same bank at prime plus 1, or 6%.Bank’s good standing customers have little chance of defaulting than customer who has a higher risk of defaulting, so the bank can charge them a rate that is lower than the rate that would becharged to other customers.
Non-performing Asset
Aloan or lease that is notmeeting its stated  principal and interest  payments.Banksusually classify as nonperforming assets anycommercial loanswhich are more than 90days overdueand any consumer loanswhich are more than 180 days overdue. More generally, anassetwhich is not producingincome.
 
Asset-liability management
Arisk management techniquedesigned to earn an adequate returnwhile maintaining a comfortablesurplusof assetsbeyondliabilities. Takes intoconsideration interest rates, earning  power , and degree of willingness totake ondebt.also called surplus management.
Repo Rate
Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is therate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks toget money at a cheaper rate. When the repo rate increases borrowing from RBI becomes moreexpensive.
Reverse Repo rate
Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks.Banks are always happy to lend money to RBI since their money are in safe hands with a goodinterest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI dueto this attractive interest rates. It can cause the money to be drawn out of the banking system.Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse Reporate our banks adjust their lending or investment rates for common man.
What is Inflation?
Inflation is defined as an increase in the price of bunch of Goods and services that projects theIndian economy. An increase in inflation figures occurs when there is an increase in the averagelevel of prices in Goods and services. Inflation happens when there are less Goods and more buyers, this will result in increase in the price of Goods, since there is more demand and lesssupply of the goods.Ineconomics,the
inflation rate
is a measure of inflation, the rate of increase of a price index  (for example, aconsumer price index).It is the percentage rate of change in price level over time.
The rate of decrease in the purchasing power of money is approximately equal.It's used to calculate thereal interest rate, as well as real increases inwages, and official measurements of this rate act as input variables toCOLAadjustments and Inflation derivatives   prices.If 
 P 
0
is the current average price level and
 P 
 
− 1
is the price level a year ago, the rate of inflationduring the year might be measured as follows:After the year the purchasing power of a unit of money is multiplied by a factor 1 / ( 1 + inflationrate ).There are other ways of defining the inflation rate, such as log
 P 
0
− log
 P 
 
− 1
(using thenaturallog), again stated as a percentage. In this case after the year the purchasing power of a unit of money is multiplied by a factor 
e
 
− inflation rate
.

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grasp.... a fundamental concept....Thats how m thankful..
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