Question:
At which rate does RBI lend money to a public sector bank on a long term?
At which rate does RBI lend money to a public sector bank on a long term?
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Remember: Bank Rate = Long-term lending by RBI; Repo Rate = Short-term lending.
Updated On: Jul 1, 2025
- Bank Rate
- CRR
- Repo Rate
- Reverse Repo Rate
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The Correct Option is A
Solution and Explanation
The Bank Rate is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks and public sector banks for the long term.
Unlike the Repo Rate, which is typically for short-term borrowing (generally overnight to a few weeks), the Bank Rate is used for longer-term loans and rediscounting of bills of exchange.
There is no collateral like securities involved in Bank Rate lending, while Repo transactions involve repurchase agreements secured by government bonds.
CRR (Cash Reserve Ratio) is not a lending rate but a percentage of deposits that banks must keep with the RBI.
Reverse Repo Rate is the rate at which RBI borrows from commercial banks.
Therefore, option (A) Bank Rate is the correct answer for long-term lending by RBI.
Unlike the Repo Rate, which is typically for short-term borrowing (generally overnight to a few weeks), the Bank Rate is used for longer-term loans and rediscounting of bills of exchange.
There is no collateral like securities involved in Bank Rate lending, while Repo transactions involve repurchase agreements secured by government bonds.
CRR (Cash Reserve Ratio) is not a lending rate but a percentage of deposits that banks must keep with the RBI.
Reverse Repo Rate is the rate at which RBI borrows from commercial banks.
Therefore, option (A) Bank Rate is the correct answer for long-term lending by RBI.
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