Page 31 - Banking Finance July 2020

ARTICLE

INTEREST RATES

IN BANKS AND

ITS ROLE IN

ECONOMY

Abstract of assets expressed as a percentage of the principal and
typically noted on an annual basis. Here a common man who
This artefact discuss briefly about how the different does not understand banking much, may ask that what they
interest rates offered by banks to different customers such
are getting on their deposits is not an interest, and the
as a housing loan borrower or a pensioner or a small
answer is yes as in a way in that case the depositor is lending
businessman. What are the factors that are driving force the money to bank and getting paid for it. The only
to define these rates? The phenomenon of coupon rate
difference is that in this case the depositor cannot decide
and yield to maturity in bond market is also inscribed
briefly. I have also illustrated How these interest rates are on this rate rather the banks can. The depositor has the
option of choosing the best rate available in the market.
being used as an instrument to control inflation, recession
and deflation in the economy. At the end I have scripted
about recent rate cuts by Reserve Bank of India to upturn This is the basic definition of interest rate that a layman can
understand but interest rate goes much beyond that. There
the down sliding economy due to Covid-19 pandemic and
its effectiveness. are many questions that one may raise like how this rates
are defined, which are the factors affecting the rates, how
What is Interest Rate: interest rates can affects our lives and the economy, how
the policy makers use it to control the economy etc. So to
The interest rate is the amount a lender charges for the use understand those, first let us see the tools which are used
by the policy makers to control the rates which are being
About the author offered to the consumers.

Nilotpal Banerjee Tools used by RBI to decide the interest
Faculty Member, Union Bank of India
Staff Training Centre, rate for consumers:
Powai, Mumbai
Reserve Bank of India, the central bank of our nation as a

BANKING FINANCE | JULY | 2020 | 31