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Published by Adarsh Kushwha

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Published by: Adarsh Kushwha on Apr 09, 2011
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Quick Guide to Terms Used in Day to Day Banking

Index  What is  What is  What is  What is  What is  What is  Basel II 24/06/10 CRR? SLR? PLR? Repo Rate? Reverse Repo Rate? Sub prime lending? 2 .

Borrowing and Interest Rates across the country 3 24/06/10 . CRR is the amount of Funds that the banks have to keep with RBI If RBI decides to increase the % of this. which influence Country·s Economy.WHAT IS CRR ?       CRR Stands for Cash Reserve Ratio A CRR is the % of bank Reserve to Deposit and Notes. the available amount with the banks comes down RBI increases CRR rate to pull out the excessive money from the banks It is also Known as Cash Asset Ratio or Liquidity Ratio CRR is used as tool in Monetary Policy.

25% 4 24/06/10 .WHAT IS SLR?    SLR stands for Statutory Liquidity Reserve/Ratio Statutary Liquidity Reserve/Ratio(SLR) is percentage of deposits the bank has to maintain in form of gold. cash or other approved securities. It regulates the credit growth in India Every financial institute is required to maintain a Statutory Liquidity reserve (SLR) of 25% (including CRR) on all its liabilities.

 It is minimum lending rate at which credit line is offered to prime borrowers 24/06/10 5 .  The interest rate that commercial banks charge their best.WHAT IS PLR?  PLR stands for Prime Lending Rate. most creditcreditworthy customers.

 Repo Rate is the Rate at which banks borrow money from RBI.  When Repo Rate increases borrowing from RBI becomes more expensive 24/06/10 6 .WHAT IS REPO RATE?  When the banks are having Shortages of Funds.  Low Repo Rate means banks are getting cheaper rate loans from RBI. they borrow it from RBI.

It can cause the money to be drawn out of the banking system. 7 24/06/10 .WHAT IS REVERSE REPO RATE?    Reverse Repo rate is the rate at which RBI borrows money from banks. Banks lend the money to RBI for safeguarding the money with good amount of interest An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates.

including subprime mortgages. A subprime loan is offered at a rate higher than Business loans due to the perceived increased risk.WHAT IS SUB PRIME LENDING?     Sub Prime Lending is lending at a higher rate than the Prime Rate. 8 24/06/10 . subprime car loans. Type of Loan offered at Rate above Prime to individuals who do not qualify from Prime Lending Rate loans. Subprime lending includes a variety of credit instruments. and subprime credit cards etc.

Operational Risk & market Risk. plus others (specifically Luxembourg and Spain).BASEL II NORMS      The Basel Committee consists of representatives from central banks and regulatory authorities of the G 10 countries. Reputation Risk. Basel II defines three approaches for calculating credit risk weights to accommodate different levels of sophistication across banks: The first pillar deals with maintenance of regulatory capital calculated for three major components of risk that a bank faces: Credit Risk. Strategic Risk. Liquidity Risk & Legal Risk. It also provides a framework for dealing with all the other risks a bank may face. Spain). This is designed to allow the market to have a better picture of the overall risk position of the bank and to allow the counterparties of the bank to price and deal appropriately 9 24/06/10 . Other risks are not considered fully quantifiable at this stage. Pension Risk. The second pillar deals with the regulatory response to the first pillar. which the accord combines under the title of residual risk The third pillar greatly increases the Disclosure that the bank must make. giving Regulators much improved 'tools' over those available to them under Basel I. such as Systemic Risk.

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