How SLR, CRR, and repo rate impacts your personal loan EMI?
The Reserve Bank of India regulates the financial market through various instruments of monetary policies. These include the Statutory Liquidity Ratio (SLR), Cash Reserve Ratio (CRR), repo rate, reverse repo rate, and others.
These rates essentially determine the deposit and lending rates of financial institutions to control the inflow and outflow of cash respectively.
Hence, the rate of interest during personal loan EMI calculation is also directly dependant on these rates. you can calculate your loan monthly EMI using a loan EMI calculator.
Definition
- Statutory Liquidity Ratio (SLR)
Statutory Liquidity Ratio (SLR) is the percentage of reserves that all commercial financial institutions have to maintain in the form of securities, gold, or cash.
The current SLR rate is 9%. Meaning, all lenders have to invest 9% of their total deposits in securities, gold, or cash.
2. Cash Reserve Ratio (CRR)
Cash Reserve Ratio (CRR) is the percentage of reserves all commercial financial institutions have to maintain with the RBI. The current CRR is 4%.
RBI regulates this rate to control inflation. Increasing this rate will mean that lenders have to deposit more to the RBI, thereby decreasing their lending capacity. On the contrary, decreasing this rate will have the opposite impact.
3. Repo Rate
Repo rate is the rate at which commercial financial institutions borrow cash from the RBI. This rate determines all secured and unsecured loans like interest rates for personal loan. The current repo rate is 6%.
Increasing this rate makes borrowing for lenders expensive; hence, they also increase their lending rates. Similarly, decreasing this rate lowers the rate of interest that lenders offer to borrowers.
4. Reverse Repo Rate
Reverse repo rate is the rate at which the RBI borrows funds from commercial financial institutions. The current reverse repo rate is 5.75%.
RBI increases this rate to encourage lenders to park their money with it and decrease the outflow of cash. On the contrary, it is decreased when it wants financial institutions to sanction more loans.
All of these rates impact the rate of interest which, in turn, affects personal loan EMI calculation. It is vital to have a proper understanding of these rates to avail loans with the most beneficial terms on them as a borrower.
Must Read: How SLR, CRR and RBI repo rate impact your Personal Loan EMI
