What is Interbank Rate?
It is the interest charged by one bank to other bank for short term loans. This interest rate is regularly fluctuating based on money availability, demand, current rates, time horizon and other terms.
There are some standard bank rates used as a reference by different banks and other interested parties in the economy.
Eg: LIBOR (London Interbank Offered Rate) , MIBOR (Mumbai interbank offer rate). Indian Banking Association(IBA) has pushed for it to the RBI.
Benchmark rate they say helps eliminate the fuzziness in loan and deposit pricing and usher in more transparency in the entire system.[source : Rupee time]
Why do bank need to borrow when they are themselves lenders?
Banks need to borrow to manage liquidity and meeting various statutory requirements placed by the RBI or other federal agencies.
Banks are required to keep some amount of liquid capital or asset to fulfill the withdrawal requirements of the customers. This is a fixed percentage of the total assets. If their is a temporary shortfall banks need to borrow to meet the liquidity requirements.
The lender bank earns interest on the excess assets lent.
Sunday, October 5, 2008
Interbank Rate
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7 comments:
Awesome post.. Very helpful..
Thanks for the post.
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That is some great information…great work!!
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Nice statistics, as we are inside this recession or credit crunch or whatever it’s called, not really suprising.
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Thanks for sharing the information. Really a Knowledgeable post.
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