Basis Point: It is one hundredth of one percent. 1 basis point means 0.01%. Used for measuring change in interest rate/yield.
MSF:
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Marginal standing facility is a window for banks to borrow from Reserve Bank of India in emergency situation when inter-bank liquidity dries up completely.
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Banks borrow from the central bank by pledging government securities at a rate higher than the repo rate under liquidity adjustment facility or LAF in short.
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It is rate at which the scheduled banks can borrow funds overnight from RBI against government securities.
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It is a very short term borrowing scheme for scheduled banks.
Liquidity Adjustment Facility (LAF):
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LAF allows banks to borrow money from RBI through repurchase agreements.
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LAF consists of repo and reverse repo operations. This arrangement allows banks to respond to liquidity pressures and is used by governments to assure basic stability in the financial markets.
Repo rate:
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It is the rate at which the RBI lends shot-term money to the banks against securities.
Reverse Repo rate:
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It is the rate at which banks park their short-term excess liquidity with the RBI.
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The banks use this tool when they feel that they are stuck with excess funds and are not able to invest anywhere for reasonable returns.
SLR: Every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). An increase in SLR restricts the bank’s leverage position to pump more money into the economy.
CRR: Banks in India are required to hold a certain proportion of their deposits in the form of cash. However, Banks don’t hold these as cash with themselves, but deposit such cash with Reserve Bank of India (RBI) / currency chests, which is considered as equivalent to holding cash with RBI. This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the RBI and is known as the CRR or Cash Reserve Ratio. It is a tool used by RBI to control liquidity in the banking system.