What is Repo Rate? | What is Reverse Repo Rate? | Difference Between Repo Rate and Reverse Repo Rate

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🔴 Repo Rate ----
When commercial banks have insufficient funds, they approach the apex bank in the country. It is the Reserve Bank of India that serves the purpose in our country. So the banks borrow loans from RBI against some securities. They pledge government securities, treasury bills, bonds, etc. Banks also offer to repurchase these securities once they pay the principal loan amount and the added interests. The interest is calculated at Repo Rate. It is called Repurchasing Option Rate for the reason that banks offer to buy them back. The agreement between the banks and RBI lays down the terms and conditions. One of the many T&Cs is to repurchase the securities on a given date and price. Hence, it is also termed a Repurchasing Agreement.
Banks can take a loan without pledging securities as collateral at the Bank Rate. The difference between Bank Rate and Repo Rate exists mainly on the grounds of collateral provision.
🔴 Reverse Repo Rate ---
The term ‘Reverse Repo Rate’ is suggestive enough that it is the reverse of Repo Rate. Therefore, the lending and borrowing conditions are contrary to that Repo Rate. Here, the Central Bank borrows money from commercial banks and pays interests. RBI pledges securities for the short term to banks to voluntarily park their excess money. In other words, RBI pays incentives to the banks to have deposits with it. This rate of interest applies to Repurchase Agreement where RBI rebuys the securities. The securities are Central & State Govt. securities, FI bonds, Corporate and PSU Bonds, etc.
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🔴 In this video-
Teacher's Name - CS Payal Popli
Topic - REPO RATE | REVERSE REPO RATE | DIFFERENCE BETWEEN REPO RATE AND REVERSE REPO RATE
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