Bank Rate vs Repo Rate: Differences, Meaning and Uses Explained

Key Takeaways
 

• The repo rate refers to the interest rate at which the RBI gives short-term loans to all the commercial banks
   
• Bank rate refers to the rate at which the Reserve Bank of India (RBI)  gives money to banks for a longer period without collateral
   
• Sometimes people get confused about the bank rate vs repo rate which is higher. Well, the bank rate is higher
   
• Repo rate directly affects loans like home loans and EMIs.
   
• But the bank rate acts as a long-term policy signal in the economy.

The repo rate refers to the interest rate at which the RBI gives money to commercial banks for a short period of time against government securities. Banks borrow this money from the RBI when they run out of funds. RBI adjusts this rate to control inflation and liquidity in the economy.

Let's understand this concept with a simple example:

If the RBI reduces its repo rate, then the commercial banks like SBI, HDFC, etc. will get funds at a lower rate, and the customers will also get home loans and other loans at a lower interest rate. 

The Economic Times says that the repo rate is a monetary policy tool used by the RBI to regulate liquidity and inflation.

What is the bank rate?

When commercial banks like SBI and HDFC wants longterm funds, the RBI lends money to banks without requiring collateral.

In the repo rate, banks need to provide securities, but in this case, they do not need to provide securities. As explained by the RBI policy glossary, the bank rate is part of India’s monetary policy framework and is usually slightly higher than the repo rate.

Bank Rate vs Repo Rate Difference

Read More : Repo Rate Up, Home Loan Cost Up

In the following table, we have mentioned the bank rate vs repo rate difference  in simple terms:
 

The repo rate controls short-term liquidity, on the other hand, bank rate manages long-term monetary policies. Both of these help the central bank regulate interest rate and maintain economic stability.

Bank Rate vs Repo Rate Time Period

The bank rate vs repo rate time period is one of the biggest differences between both of them:
 

• Repo Rate: Mostly overnight or short-term borrowing.
• Bank Rate: Longer-term borrowing with no fixed repayment period.
   

This is the main reason why repo rate changes happen frequently during RBI policy meetings, while, on the other hand, bank rate changes are less frequent.

Bank Rate vs Repo Rate Which is Higher?

Most of the people have one question that bank rate vs repo rate which is higher?

Most of the time Bank Rate is higher than the repo rate. But why? Because:
 

• Repo loans are secured (with collateral).
• Bank rate loans are unsecured, so the RBI charges slightly higher interest.

According to the RBI data, the bank rate generally stays above the repo rate levels.

Also Read : Inflation Falls Below RBI Target Again

SBI Bank Rate vs Repo Rate  (Examples) 

When the RBI changes the repo rate, banks like SBI adjust lending rates quickly.

Example:
 

• RBI reduces the repo rate, and then SBI reduces home loan interest; after this, EMI becomes cheaper.
   

According to the news report, repo rate cuts directly reduce lending rates of public sector banks. So we can say that the repo rate not only affects the commercial bank but also impacts the customers.

Is There a Bank Rate vs Repo Rate Calculator?

No, there is no official bank rate vs repo rate calculator, but other financial calculators calculate loan EMI charges according to the repo rate movement. Retail loans are mostly repo-linked today.

Banks do not use public calculators for bank rate adjustments; they use their internal systems.

Bonus Tip 

Do not track the bank rate if you want to predict future loan EMIs; always track repo rate announcements because the repo rate directly affects borrowing costs for customers.

Wrapping up everything

With the help of the bank rate vs repo rate, you can easily understand how the RBI controls the Indian economy. The repo rate mainly manages short-term liquidity and directly impacts loans and EMIs, while the bank rate works as a long-term policy indicator. In most cases, the bank rate remains slightly higher because it involves unsecured lending. For common people, repo rate changes matter more because they influence home loans, car loans, and business borrowing quickly.

FAQ

1. What is the main bank rate vs. repo rate difference? (GPT) 

The repo rate is short-term secured borrowing, while the bank rate is long-term unsecured borrowing by banks from the RBI.

2. What is the difference between a bank rate and a REPO rate with respect to RBI? (Quora) 

Bank Rate: This is the rate at which the Reserve Bank of India (RBI) lends money to banks without collateral for a long-term period. 

Repo Rate: The rate at which the RBI lends money to banks with government securities as collateral for a short-term period. 

3. Repo rate ( how it works )

First, the banks borrow short-term money from Reserve Banks India by giving securities as collateral at a fixed interest rate.

4. RBI reduces the repo rate to 5.25%. How will this impact the economy and the market?

Loans will become cheaper, spending and investment will increase, and the economy will get a boost.

5. Is it Repo rate or Bank rate through which commercial banks borrow money from RBI?

Commercial banks mainly borrow from the RBI through the repo rate, not the bank rate.