INTEREST RATE TERM STRUCTURE

The interest rate term structure is the relation between the interest rate and the time to maturity of the debt for a given borrower in a given currency.

In India, interest rate decisions are taken by the Reserve Bank of India's Central Board of Directors. The official interest rate is the benchmark repurchase rate. ,From 2000 until 2010, India's average interest rate was 5.82 percent reaching an historical high of 14.50 percent in August of 2000 and a record low of 3.25 percent in April of 2009.

LAST 10 YR DATA OF INTEREST RATE STRUCTURE 2000-2010 ( IN %)

REPO RATE
Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive.

REVERSE REPO RATE

Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system. Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse Repo rate our banks adjust their lending or investment rates for common man.

Cash reserve Ratio (CRR)

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

LAST 5 YR DATA OF REPO RATE,REVERSE REPO RATE AND CRR 2005-2010 ( IN %)

LENDING INTEREST RATE

Lending interest rate is the rate charged by banks on loans to prime customers The Lending interest rate in India was reported at 13.31% in 2008, according to the World Bank. Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labour force.

LAST 10 YR DATA OF LENDING INTEREST RATE 2000-2010 (IN %)

2000 12.29 2002 11.92 2004 10.92 2006 11.19 2008 13.31 2001 12.08 2003 11.46 2005 10.75 2007 13.02

BASE RATE
It is the minimum rate of interest that a bank is allowed to charge from its customers. Unless mandated by the government, RBI rule stipulates that no bank can offer loans at a rate lower than BR to any of its customers. Many commercial banks have revised their base rates owing to the rising costs of borrowings. These banks include names like Punjab National Bank, IDBI Bank, Allahabad Bank and Axis Bank.

BANKS AND LATEST BASE RATE (p.a%)

PUBLIC SECTOR BANKS
State Bank of India 7.50% Federal Bank 7.75% State Bank of Mysore 7.75% Corporation Bank 7.75% Bank of India 8.00% Punjab National Bank 8.00% Bank of Baroda 8.00% Union Bank 8.00% Central Bank of India 8.00% Indian Bank 8.00% Uco Bank 8.00% IDBI Bank 8.00% Indian Bank 8.00% Canara Bank 8.00% Vijaya Bank 8.25% Indian Overseas Bank 8.25%

PRIVATE SECTOR BANKS

HDFC Bank 7.25% ICICI Bank 7.50% DCB 7.75% Dhanlaxmi Bank 7.00% Bank of Rajasthan 8.00% Karur Vysya Bank 8.50%

DEPOSIT RATE
Interest rate paid by a depository institution on the cash on deposit. October 04, 2010 - Term deposits will now earn customers more interest. The countrys largest lender SBI - increased deposit rates up to 0.75 % PNB raised interest rate on fixed deposits by 0.250.50% IDBI Bank hiked 0.15-0.50 % South India-based Karur Vysya Bank 0.25-0.50%

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