Quick Guide to Terms Used in Day to Day Banking

CA Jyot Shukla ± Vadodara

Index  What is  What is  What is  What is  What is  What is  Basel II 8/29/2011 CRR? SLR? PLR? Repo Rate? Reverse Repo Rate? Sub prime lending? Jyot Shukla .Vadodara 2 .

Vadodara 3 8/29/2011 . Borrowing and Interest Rates across the country Jyot Shukla .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. which influence Country·s Economy. CRR is the amount of Funds that the banks have to keep with RBI If RBI decides to increase the % of this.

cash or other approved securities. 25% Jyot Shukla .Vadodara 4 8/29/2011 . 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.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.

 It is minimum lending rate at which credit line is offered to prime borrowers 8/29/2011 Jyot Shukla .  The interest rate that commercial banks charge their best.Vadodara 5 . most creditcreditworthy customers.WHAT IS PLR?  PLR stands for Prime Lending Rate.

 Low Repo Rate means banks are getting cheaper rate loans from RBI.Vadodara 6 . they borrow it from RBI.WHAT IS REPO RATE?  When the banks are having Shortages of Funds.  When Repo Rate increases borrowing from RBI becomes more expensive 8/29/2011 Jyot Shukla .  Repo Rate is the Rate at which banks borrow money from RBI.

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.Vadodara 7 8/29/2011 . It can cause the money to be drawn out of the banking system. Jyot Shukla .

Jyot Shukla .Vadodara 8 8/29/2011 . Subprime lending includes a variety of credit instruments.WHAT IS SUB PRIME LENDING?     Sub Prime Lending is lending at a higher rate than the Prime Rate. subprime car loans. Type of Loan offered at Rate above Prime to individuals who do not qualify from Prime Lending Rate loans. and subprime credit cards etc. A subprime loan is offered at a rate higher than Business loans due to the perceived increased risk. including subprime mortgages.

BASEL II NORMS      The Basel Committee consists of representatives from central banks and regulatory authorities of the G 10 countries. Operational Risk & market Risk. plus others (specifically Luxembourg and Spain). Pension Risk. giving Regulators much improved 'tools' over those available to them under Basel I. The second pillar deals with the regulatory response to the first pillar. 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 Jyot Shukla . which the accord combines under the title of residual risk The third pillar greatly increases the Disclosure that the bank must make.Vadodara 9 8/29/2011 . 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. Reputation Risk. Other risks are not considered fully quantifiable at this stage. such as Systemic Risk. Liquidity Risk & Legal Risk. Strategic Risk. It also provides a framework for dealing with all the other risks a bank may face. Spain).

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