Question

At which rate does RBI lend money to a public sector bank on a long term?

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

Hint:

Remember: Bank Rate = Long-term lending by RBI; Repo Rate = Short-term lending.

Answer 1

The Correct Option is A

The Bank Rate is the interest rate set by the Reserve Bank of India (RBI) for long-term loans provided to commercial and public sector banks.
This differs from the Repo Rate, which is a short-term borrowing rate (typically overnight to a few weeks). The Bank Rate applies to extended loan periods and the rediscounting of bills of exchange.
Bank Rate lending does not require collateral such as securities, whereas Repo transactions are repurchase agreements backed by government bonds.
The CRR (Cash Reserve Ratio) is not a lending rate; it mandates the percentage of deposits banks must hold with the RBI.
The Reverse Repo Rate is the rate at which the RBI borrows funds from commercial banks.
Consequently, option (A) Bank Rate correctly identifies the rate for long-term lending by the RBI.