Bank Rate in India 2025 For candidates preparing for banking exams like IBPS, SBI, RBI, NABARD, and SEBI, understanding the bank rate is very important. Along with the repo rate, reverse repo rate, CRR, and SLR, the bank rate forms a crucial part of the monetary policy framework of the Reserve Bank of India (RBI). Questions related to it are often asked in both conceptual and current affairs-based forms.
This article explains the bank rate in detail, including its meaning, formula, types, difference with the repo rate, relation with the reverse repo rate, current rate, its impact on loans, and its importance for aspirants.
What is Bank Rate?
The Bank Rate is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks and financial institutions for long-term purposes, without requiring collateral or repurchase agreements.
When the RBI increases the bank rate, it becomes more expensive for banks to borrow from it. This reduces the supply of money in the economy and helps in controlling inflation. On the other hand, when the bank rate is lowered, borrowing becomes cheaper, which increases liquidity and promotes economic growth. In simple words, the bank rate is the long-term lending rate of the RBI to banks without demanding any collateral.
What is the Bank Rate Formula?
There is no specific mathematical formula for calculating the bank rate, as it is a rate directly fixed by the RBI. However, to understand its effect, it can be represented in this way:
Bank Rate = Interest Charged by RBI on Long-Term Loans to Banks
For example, if the RBI lends Rs. 100,000 to a commercial bank at a bank rate of 6 percent annually, then after one year, the bank will repay Rs. 106,000.
This shows that the bank rate directly represents the cost of borrowing from the RBI.
Types of Bank Rate
Though in India the bank rate generally refers to the standard lending rate fixed by the RBI, it can be understood in different categories for clarity:
| Type of Bank Rate | Explanation |
| Standard Bank Rate | The official rate declared by the RBI for lending to commercial banks. It is normally higher than the repo rate. |
| Penalty Bank Rate | A higher rate charged by the RBI when banks fail to maintain CRR or SLR. This acts as a deterrent to ensure compliance with regulations. |
| Discount Rate | Bank rate is also called the discount rate in some contexts because it is linked to discounting long-term loans or bills without collateral. |
For examination purposes, whenever the term “Bank Rate” is mentioned, it refers to the standard rate fixed by the RBI.
Bank Rate vs Repo Rate
Both the bank rate and repo rate are important monetary policy instruments, but they differ in their usage and nature.
- The Repo Rate refers to short-term lending by the RBI to banks against government securities.
- Bank rate refers to long-term lending by the RBI without any collateral.
| Feature | Bank Rate | Repo Rate |
| Collateral | No collateral required | Requires securities as collateral |
| Tenure | Long-term lending | Short-term lending (usually overnight) |
| Usage | Controls long-term liquidity | Controls short-term liquidity |
| Rate Level | Higher than Repo Rate | Lower than Bank Rate |
| Purpose | Used for penalties and long-term funds | Used for short-term liquidity needs |
What is Reverse Repo Rate?
The reverse repo rate is the rate at which the RBI borrows money from commercial banks by offering them government securities. It is used to absorb excess liquidity from the system.
While the repo rate and reverse repo rate are used together for managing short-term liquidity in the banking system, the bank rate is different, as it is applied for long-term borrowing without securities.
The order of these rates is Reverse Repo Rate < Repo Rate < Bank Rate.
Current Bank Rate in India
As of August 2025, the bank rate in India is 5.75 percent. This is 25 basis points higher than the repo rate of 5.50 percent, as per the latest decision of the Monetary Policy Committee (MPC) of the RBI.
The bank rate generally changes in line with repo rate adjustments but is always maintained at a slightly higher level.
How Does the Bank Rate Function?
When commercial banks face long-term liquidity shortages, they may borrow from the RBI at the bank rate. However, since the rate is higher compared to other borrowing options, banks usually avoid borrowing at this rate unless necessary.
If the RBI increases the bank rate:
- Borrowing becomes expensive for banks.
- Money supply in the economy reduces.
- Inflationary pressures are controlled.
If the RBI decreases the bank rate:
- Borrowing becomes cheaper for banks.
- More liquidity is available in the economy.
- Investment and spending are encouraged.
Bank Rate and Loan Interest Rates
The bank rate has an indirect effect on the loan interest rates charged by commercial banks. It influences the base rate of banks, which is the minimum lending rate below which they cannot provide loans.
When the bank rate is increased, banks generally raise their base lending rates, making loans costlier for customers. When the bank rate is reduced, the base rate also comes down, and loans become cheaper.
Although home loan EMIs are directly linked to the repo rate, the bank rate plays a role in shaping the overall lending structure of banks.
Why Is the Bank Rate Important for Banking Aspirants?
For candidates preparing for exams, the bank rate is an important topic because:
- It is frequently asked in the Terms in Banking Awareness section in both objective and descriptive forms.
- Questions may be asked on its meaning, formula, and differences with the repo rate and reverse repo rate.
- Current affairs questions often include the latest bank rate announced by the RBI.
- It is important for understanding the broader monetary policy and its impact on inflation, liquidity, and lending.
15 Bank Rate Questions for Bank Exam Aspirants
- What is the bank rate?
- (a) Short-term lending by RBI
- (b) Long-term lending by RBI without collateral ✓
- (c) Rate at which banks lend to customers
- (d) Reverse repo lending
- Which of the following is generally higher?
- (a) Repo Rate
- (b) Reverse Repo Rate
- (c) Bank Rate ✓
- (d) CRR
- Bank Rate is used mainly to control:
- (a) Long-term liquidity ✓
- (b) Short-term liquidity
- (c) Forex reserves
- (d) Inflation index
- What does RBI require when lending at repo rate?
- (a) No collateral
- (b) Government securities ✓
- (c) Foreign currency
- (d) Bonds from private firms
- Which of these directly affects home loan EMIs?
- (a) Repo Rate ✓
- (b) Bank Rate
- (c) Reverse Repo Rate
- (d) Base Rate
- Current Bank Rate in India (August 2025) is:
- (a) 5.25%
- (b) 5.50%
- (c) 5.75% ✓
- (d) 6%
- Which is always higher than repo rate?
- (a) Reverse Repo Rate
- (b) Bank Rate ✓
- (c) SLR
- (d) CRR
- Who decides the Bank Rate in India?
- (a) Ministry of Finance
- (b) RBI ✓
- (c) SEBI
- (d) NITI Aayog
- Bank Rate directly impacts:
- (a) Base Rate of banks ✓
- (b) Repo Rate
- (c) Reverse Repo Rate
- (d) Forex reserves
- Which monetary tool is collateral-free?
- (a) Repo Rate
- (b) Reverse Repo Rate
- (c) Bank Rate ✓
- (d) CRR
- The penalty for default in maintaining CRR is linked with:
- (a) Repo Rate
- (b) Bank Rate ✓
- (c) Reverse Repo Rate
- (d) SLR
- When RBI increases the Bank Rate, it:
- (a) Encourages borrowing
- (b) Discourages borrowing ✓
- (c) Reduces repo rate
- (d) Increases liquidity
- Which rate has the shortest tenure?
- (a) Repo Rate ✓
- (b) Bank Rate
- (c) Reverse Repo Rate
- (d) Base Rate
- Bank Rate is a type of:
- (a) Fiscal Policy
- (b) Monetary Policy ✓
- (c) Trade Policy
- (d) Credit Policy
- Which one is also known as the “discount rate”?
- (a) Repo Rate
- (b) Bank Rate ✓
- (c) Reverse Repo Rate
- (d) Base Rate
FAQs
The Bank Rate is the rate at which the Reserve Bank of India (RBI) lends long-term funds to commercial banks without requiring collateral. It is generally higher than the repo rate and is used to control long-term liquidity.
As of August 2025, the current Bank Rate in India is 5.75 percent, which is 25 basis points higher than the repo rate of 5.50 percent.
The Bank Rate is for long-term lending by the RBI without collateral, while the Repo Rate is for short-term lending with government securities as collateral. The Bank Rate is always higher than the Repo Rate.
The Bank Rate influences the base rate of banks. When the Bank Rate increases, banks raise their lending rates, making loans costlier. When it decreases, borrowing becomes cheaper for customers.
For IBPS, SBI, RBI, NABARD, and SEBI exams, Bank Rate is important because questions are asked on its definition, formula, differences with repo and reverse repo rate, and its current value. It is a key topic in the Banking Awareness section.
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