Question

The standard rate at which RBI is prepared to buy or rediscount bills of exchange of commercial banks is called:

• A. SLR
• B. Bank Rate
• C. CRR
• D. Repo Rate

Hint:

Remember: Bank Rate = Long-term lending rate of RBI; Repo Rate = Short-term borrowing rate with collateral.

Answer 1

The Correct Option is B

The Bank Rate is the rate at which the Reserve Bank of India (RBI) is willing to lend money to commercial banks.
It is also the standard rate used when the RBI buys or rediscounts bills of exchange and other eligible commercial papers from banks.
When commercial banks face a shortage of funds, they can approach the RBI and borrow by rediscounting these bills.
The bank rate influences the lending rates of commercial banks, as changes in this rate impact the cost of borrowing for them.
SLR (Statutory Liquidity Ratio) and CRR (Cash Reserve Ratio) are reserve requirements, not lending rates.
Repo Rate is used for short-term borrowing by pledging securities, whereas the Bank Rate is for long-term lending without collateral securities.
Therefore, option (B) Bank Rate is the correct answer.