Question

Bank Rate implies the rate of interest:

(a) paid by the Reserve Bank of India on the Deposits of Commercial Banks

(b) charged by Banks on loans and advances

(c) payable on Bonds

(d) at which the Reserve Bank of India discounts the Bills of Exchange

Answer 1

(d) Bank Rate is that rate of interest at which central bank of a country provides refinancing facilities to commercial banks. The bank rate, a benchmark rate at which RBI buys or re-discounts bills of exchange or other commercial papers eligible for purchase. Every bank needs refinancing as it is very difficult to match borrowings and flow of deposits.