With referenced to the Variable Rate Repo (VRR), consider the following statements: 1. These are short-term borrowing mechanisms where banks borrow funds from the RBI at variable interest rates by pledging securities. 2. The interest rate in VRR is pre-determined by the RBI. 3. Only commercial banks operating in India can participate in VRR auctions. How many of the statements given above are correct? |ForumIAS

Q. With referenced to the Variable Rate Repo (VRR), consider the following statements:
1.These are short-term borrowing mechanisms where banks borrow funds from the RBI at variable interest rates by pledging securities.
2.The interest rate in VRR is pre-determined by the RBI.
3.Only commercial banks operating in India can participate in VRR auctions.
How many of the statements given above are correct?

[A] Only one

[B] Only two

[C] All three

[D] None

Answer: A

Notes:

Explanations –

Statement 1 is correct. Variable Rate Repo (VRR) auctions are short-term borrowing mechanisms where banks borrow funds from the RBI by pledging government securities as collateral. The interest rate is determined through an auction process, making it variable.

Statements 2 and 3 are incorrect. The interest rate in VRR is not pre-determined by the RBI. It is decided through a competitive auction process, where banks bid for funds at varying interest rates. Participation in VRR auctions is not limited to commercial banks. Other eligible entities, such as Primary Dealers (PDs) and certain financial institutions, may also participate, depending on RBI regulations.

Source: DD News

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