<P> Bank rate, also referred to as the discount rate in American English, is the rate of interest which a central bank charges on its loans and advances to a commercial bank . The bank rate is known by a number of different terms depending on the country, and has changed over time in some countries as the mechanisms used to manage the rate have changed . </P> <P> Whenever a bank has a shortage of funds, they can typically borrow from the central bank based on the monetary policy of the country . </P> <P> The borrowing is commonly done via repos: the repo rate is the rate at which the central bank lends short - term money to the banks against securities . It is more applicable when there is a liquidity crunch in the market . </P> <P> In contrast, the reverse repo rate is the rate at which banks can park surplus funds with the reserve bank . This is mostly done when there is surplus liquidity in the market . </P>

Rate at which rbi lends money to commercial banks