How does a bank operate?

This is a very basic post for the kids and for the people to explain the banking terminologies. Here is a conversation blogbetween Dad and Son explaining how the bank operates,

What are the implications of CRR, SLR, Repo Rate, Reverse Repo Rate and their impact on deposit rate, loan interest rate and on inflation?

Son: I have heard recently that Mr. Rajan has reduced Repo Rate by 50 basis points and everyone is saying that this is good for the market. Loan EMI may also come down. What is this rate cut means actually? I want to understand this.

Dad: To understand this you first need to know, how does a bank function. Continue reading “How does a bank operate?”

Hello World !! It would be wise to listen to Raghuram Rajan

In his first official act as the new governor of the Reserve Bank of India (RBI), Raghuram Rajan raised the benchmark interest rate blogfrom 7.25 to 7.5%, causing a ripple of surprise in financial circles and eliciting protests from various business representatives. But for people who know the current condition of emerging markets and Rajan’s professional trajectory, this was not surprising, at all.

Rajan has no qualms about staging such challenges. In 2005, Rajan was chief economist of the International Monetary Fund and attended the top central bankers’ get together in Jackson Hole, Wyoming, to present a paper on how the financial sector had evolved during Alan Greenspan’s era. As Rajan later described the meeting, which was to be Greenspan’s last, in his book Fault Lines: “Some of the papers in the conference, in keeping with the Greenspan-era theme, focused on whether Alan Greenspan was the best central banker in history, or just among the best.”  Continue reading “Hello World !! It would be wise to listen to Raghuram Rajan”

FAULT LINES : By The Governer Reserve Bank Of India

From the financial theory to practice Raghuram Rajan the chief economic adviser of India. Soon be head the Reserve Bank of India. Mr Rajan is imageseven more of a free-market man than Mr Basu. Fault Lines attacks state subsidies of housing finance as well as Wall Street. He has been vocal about India’s troubles.

He takes the central bank reins as India faces testing economic times — hit by a capital flight with investors worried about slow growth, a massive deficit, stalled economic reforms and a slew of graft scandals that have paralyzed the political process

Rajan, who favors financial deregulation, is expected to bring new ideas to the RBI which the finance ministry believes to be too conservative.

Here is a short extract of his famous book “Fault lines”  Continue reading “FAULT LINES : By The Governer Reserve Bank Of India”