Q: What is the purpose of bank rate ?

Ans: Bank rate has two main purposes:


1. Discount rate : Banks gets bills of exchange and commercial papers rediscounted @bank rate from RBI.

2. Penal rate: In case of bank defaults on SLR and CRR, penalty is levied by RBI.


Penalty:

Bank rate + 3 % on First Day

Bank rate + 5 % on subsequent days

Initially Bank rate = Repo rate + 1 percent

For example : Bill of exchange worth Rs 1 crore and cash date is after three months.

Bill of exchange discounted @Bank rate


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