Difference Between Repo Rate and Bank Rate
The main difference between Repo Rate and Bank Rate. When the banks need money to meet their day-to-day obligations, they approach RBI to borrow required money. Repo rate is a rate at which banks borrow money from RBI against the sale of government securities. Repo rate is an abbreviation of Repurchase Rate.
The rate at which banks borrow money from the RBI without any sale of securities is called the Bank rate. Unlike Repo Rate, there is no sale of security in Bank Rate. Such money is borrowed by banks comparatively for a longer period of time.
There are many differences between Repo Rate and Bank Rate which are listed in the following table:
Repo Rate Vs Bank Rate
| Basis of Difference | Repo Rate | Bank Rate | |
|---|---|---|---|
| Definition | Repo rate is a rate at which banks borrow money from RBI against the sale of government securities | Vs | Bank Rate is the rate at which banks borrow money from the RBI without any sale of securities |
| Purpose | To fulfill the deficiency of funds of the banks | Vs | Based on the demand and supply of money in the economy |
| Controlled by | Reserve Bank of India | Vs | Reserve Bank of India |
| Impact on Cost | Higher the repo rate means the cost of short-term money is very high which may slowdown the economic growth | Vs | Higher the bank rate, higher will be the long-term interest rates |
| Rate | Lower than Bank Rate | Vs | Higher than Repo Rate |
| Control | Repo Rate controls inflation in the economy | Vs | Demand and supply of money in the economy more effectively |
| Higher Rate results into | Banks will borrow less from the RBI | Vs | If the bank rate goes up, long-term interest rates also tend to move up |
| Collateral | Selling bank's securities as collateral to the RBI | Vs | Not involved |
| Duration | To meet short-term financial needs | Vs | Money is borrowed by the banks comparatively for a longer period of time |