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scheduled bank can act as an IPA (Issuing and Paying Agent) for
issuance of CP.
12. Treasury Bills: Treasury bills (T bills) offer short term investment
opportunities. They are thus useful in managing short term liquidity. At
present, the Government of India issues three types of treasury bills
through auctions, namely, 91 day, 182 day and 364 day. There are no
treasury bills issued by State Governments. Treasury bills are available
for a minimum amount of Rs.25,000 and in multiples of Rs. 25,000.
Treasury bills are issued at a discount and are redeemed at par.
13. Certificates of Deposit (CD): Certificate of Deposit (CD) is a
negotiable money market instrument and issued in dematerialised
form or as a Usance Promissory Note against funds deposited at a bank
or other eligible financial institution for a specified time period.
Note: CDs can be issued by (i) scheduled commercial banks{excluding
Regional Rural Banks and Local Area Banks}; and (ii) select All ]India
Financial Institutions (FIs) that have been permitted by RBI Minimum
amount of a CD should be Rs.1 lakh, and in multiples of Rs. 1 lakh
thereafter. The maturity period of CDs issued by banks should not be
less than 7 days and not more than one year, from the date of issue.
14. Bank Rate: The interest rate at which at central bank lends money
to commercial banks. Often these loans are very short in duration.
Managing the bank rate is a preferred method by which central banks
can regulate the level of economic activity. Lower bank rates can help
to expand the economy, when unemployment is high, by lowering the
cost of funds for borrowers. Conversely, higher bank rates help to reign
in the economy, when inflation is higher than desired.
15. Repo Rate: Whenever the banks have any shortage of funds they
can borrow it form RBI. Repo rate is the rate at which commercial
banks borrows rupees from RBI. A reduction in the repo rate will help
banks to get money at cheaper rate. When the repo rate increases
borrowing form RBI becomes more expensive.
16. Reverse Repo Rate: Reverse Repo rate is the rate at which RBI
borrows money from commercial banks. Banks are always happy to
lend money to RBI since their money is in the safe hands with a good
interest. An increase in reverse repo rate can cause the banks to
transfer more funds to RBI due to this attractive interest rates. One
factor which encourages an organisation to enter into reverse repo is
that it earns some extra income on its otherwise idle cash.
17. CRR (Cash Reverse Ratio): CRR is the amount of funds that the
banks have to keep with RBI. If RBI increases CRR, the available
amount with the banks comes down. RBI is using this method (increase
of CRR), to drain out the excessive money from the banks.
18. SLR (Statutory Liquidity Ratio): SLR is the amount a
commercial banks needs to maintain in the form of cash, or gold, or
govt. approved securities (Bonds) before providing credit to its
customers. SLR rate is determined and maintained by RBI in order to
control the expansion of the bank credit.
19. Marginal Standing Facility (MSF): MSF rate is the rate at which
banks borrow funds overnight from the Reserve Bank of India against
approved government securities.