DMPQ: Explain the following terms;         1) TAccavi         2) Repo rate         3) Base rate         4) Marginal cost of fund based lending rate

1. What is Taccavai?

Ans:  Taccavai is agricultural loan given to poor cultivators to relieve their distress and enable them to pay land revenue in time.

1. What is repo rate?

Ans:  Repo rate is the interest rate at which the RBI lends money to commercial banks.  It is a monetary policy instrument which can be used to control the money supply and thereby inflation.

1. Base rate

Ans:  Base rate is the minimum rate set by the RBI below which banks are not allowed to lend to its customers. Banks calculate the lending rates to its customers based on the base rate.

1. What is Marginal cost of funds based lending rate?

Ans:  The marginal cost of funds based lending rate (MCLR) refers to the minimum interest rate of a bank below which it cannot lend, except in some cases allowed by the RBI. It is an internal benchmark or reference rate for the bank. MCLR actually describes the method by which the minimum interest rate for loans is determined by a bank – on the basis of marginal cost or the additional or incremental cost of arranging one more rupee to the prospective borrower.