• Reverse Repo Rate = Repo Rate - 0.25% (generally)
• Bank Rate = Repo Rate + 0.25% (generally)
• Money Multiplier = 1/CRR (simplified)
• Effective CRR = (Cash with RBI / Net Demand and Time Liabilities) × 100
EXAM PATTERN INSIGHT:
IBPS PO typically asks 2-3 questions on RBI functions. Common question types include: current policy rates, RBI governors' names, establishment year, and headquarters location. Monetary Policy Committee (MPC) decisions are frequently tested.
SHORTCUT TRICK - RATE HIERARCHY:
Remember: Bank Rate > Repo Rate > Reverse Repo Rate
Usually: Bank Rate = Repo + 0.25%, Reverse Repo = Repo - 0.25%
WORKED EXAMPLE 1:
Question: If current Repo Rate is 6.50%, what would be the typical Reverse Repo Rate and Bank Rate?
Solution:
Step 1: Reverse Repo Rate = Repo Rate - 0.25% = 6.50% - 0.25% = 6.25%
Step 2: Bank Rate = Repo Rate + 0.25% = 6.50% + 0.25% = 6.75%
Answer: Reverse Repo = 6.25%, Bank Rate = 6.75%
WORKED EXAMPLE 2:
Question: If CRR is increased from 4% to 4.5%, what happens to money supply?
Solution:
Step 1: Higher CRR means banks must park more money with RBI
Step 2: Less money available for banks to lend
Step 3: Reduced lending = Reduced money supply in economy
Step 4: This is a contractionary monetary policy
Answer: Money supply decreases, leading to economic slowdown control.
DEVELOPMENTAL FUNCTIONS:
RBI also promotes financial inclusion, regulates payment systems, manages foreign exchange, and supervises banking operations. It issues banking licenses and ensures financial stability.
#1 COMMON TRAP:
Students often confuse Repo Rate with Bank Rate. Remember: Repo Rate is for short-term lending (overnight), while Bank Rate is for long-term lending. In exams, if they ask about 'policy rate for overnight lending', answer is Repo Rate, not Bank Rate. Another trap: CRR and SLR both are percentages of deposits, but CRR money goes to RBI (earning no interest), while SLR money stays with bank (invested in government securities).