Bank terms

Other Associated terms

Market Stabilization Scheme (MSS)

MSS securities are issued to suck out excess liquidity from the market through issue of securities like treasury 

bills, dated securities etc. on behalf of the government. 

 The amount raised under the MSS is maintained with the RBI.

Base Rate

 It is the minimum rate set by the Reserve Bank of India below which banks are not allowed to lend to its customers.

 The main components of base rate system are: 

 Cost of funds (interest rates offered by banks on deposits)

 Cost of maintaining CRR; Profit margin; Operating expenses to run the bank. 

 It does not consider repo rate in their calculations.

 Phased out to replace it with a more responsive system i.e. Marginal Cost of Lending Rate (MCLR): 

 MCLR: Benchmark lending rate based on the marginal cost of funds

 Calculated based on four components: Marginal cost of funds; Tenor premium; Operating costs; Negative carry 

on account of cash reserve ratio

 Help improve the transparency; help ensure availability of bank credit at interest rates which are fair to the 

borrowers as well as the banks. [UPSC 2014, 2016];

 External Benchmark Lending Rate: Currently in use. Interest rate linked to an external benchmark (e.g., 

repo rate, T-Bill rates).

Government Securities (G-Sec)

 It is a tradable instrument issued by the central government or state governments. 

 Short-term G-secs (with original maturities of less than one year) are called Treasury Bills.

 Long-term G-secs (with original maturities of more than one year) or long term are called Government Bonds 

or Dated Securities.

Treasury Bills are not issued by State Governments, while Government Bonds or Dated securities are issued 

both by State and Central Governments.Other Associated terms

Market Stabilization Scheme (MSS)

 MSS securities are issued to suck out excess liquidity from the market through issue of securities like treasury 

bills, dated securities etc. on behalf of the government. 

 The amount raised under the MSS is maintained with the RBI.

Base Rate

 It is the minimum rate set by the Reserve Bank of India below which banks are not allowed to lend to its customers.

 The main components of base rate system are: 

 Cost of funds (interest rates offered by banks on deposits)

 Cost of maintaining CRR; Profit margin; Operating expenses to run the bank. 

 It does not consider repo rate in their calculations.

 Phased out to replace it with a more responsive system i.e. Marginal Cost of Lending Rate (MCLR): 

 MCLR: Benchmark lending rate based on the marginal cost of funds

 Calculated based on four components: Marginal cost of funds; Tenor premium; Operating costs; Negative carry 

on account of cash reserve ratio

 Help improve the transparency; help ensure availability of bank credit at interest rates which are fair to the 

borrowers as well as the banks. [UPSC 2014, 2016];

 External Benchmark Lending Rate: Currently in use. Interest rate linked to an external benchmark (e.g., 

repo rate, T-Bill rates).

Government Securities (G-Sec)

 It is a tradable instrument issued by the central government or state governments. 

 Short-term G-secs (with original maturities of less than one year) are called Treasury Bills.

 Long-term G-secs (with original maturities of more than one year) or long term are called Government Bonds 

or Dated Securities.

 Treasury Bills are not issued by State Governments, while Government Bonds or Dated securities are issued 

both by State and Central Governments.Gross Capital Formation: Refers to the aggregate of gross additions to fixed assets (that is fixed capital formation)

plus change in stocks during the counting period.

Cheque Truncation System (CTS)

  It is an online image-based cheque clearing system undertaken by the RBI for faster clearing of cheque.

  It eliminates the associated cost of movement of physical cheque.

Hawkish: When a central bank wants to guard against excessive inflation, thereby increasing interest rates.

Dovish: Opposite of hawkish, interest rates are reduced to fuel growth.

Benchmark Prime Lending Rate (BPLR): The rate at which commercial banks can lend to customers who are most

creditworthy.

Inflation Targeting: A central bank has an explicit target inflation rate range. The government and RBI agree on

convergence between fiscal and monetary policies.

Operation Twist

  It is the special Open Market Operations (OMOs) carried out by the RBI.

  The RBI sells short-term G-Secs to the Banks and financial institutions and collects money. The same money would

then be used by the RBI to buy long term G-Secs.

Financial Repression

It describes measures by which government channel funds from the private sector to themselves as a form of debt

reduction.

Seigniorage: It is the difference between the value of currency/money and the cost of producing it. It is essentially

the profit earned by the government by printing currency.