November 2020


Repo and Reverse Repo Rate

We all know that the Reserve Bank of India (RBI) is the Central bank of India. Repo rate is the rate at which the commercial banks can borrow money from the central bank. And reverse repo rate is the rate at which the commercial banks deposit money at the central bank (RBI). Repo is a short form of repurchase agreement. This is an exchange of money for Bond between commercial banks and the central bank.

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Credit Risk

Let’s discuss what does Risk means. Risk is simply called uncertainty. For example, when you lend money to your friend and there is a risk when you are not sure about getting back since he lost his job recently.

Similarly, when you consider banking, their main business is to make people deposit in their bank and lend money to others. Credit risk arises due to uncertainty of collecting back the money from borrowers. Credit risk can be high when the credit quality of the borrower is low. Due to lower credit quality and non-repayment of borrowed loans, Banks can expect losses. These losses are calculated as Expected Loss

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