Raju singh is a passionate chef who was studying Hotel management in Chandigarh. He always wanted to start his own restaurant like his uncle. Due to his family financial reasons, he started to work in a three star hotel in the city. He use to work 15 hours a day tirelessly serving his customers with tasty food. His performance usually use to get appreciations and salary hike from his management and appraisals from his customers but he use to be unhappy. He used to always stair out the window of a road side Dhaba which was started recently. This used to disturb his work and made him think about his dream.
One day, he suddenly resigned from the hotel with no reason and decided to startup by his own. He started preparing his business plan and piled up all his savings . Later he realized that his savings won’t reach the budget nearer to execute his Idea. So, went to his friends asked to Lend some money. No one was interested in his idea. He asked his parents and uncles. There was a big No from them too. Thereafter he realized that only banks can help him to get out of this situation. so, he went to the banks and applied for a Loans. He faced many rejections. After no of trails, he finally received his anticipated Loan after a long wait from a bank.
He worked hard with the bank loan and the achieved his Target. He became one of the successful Restaurant owners in the city. Because of this friends who rejected him, owned him back and shared his success story on Facebook. Many youth in the city got inspired and began to startup their own ventures by watching his success story . The bank was filled with long queue with youth for Loans.
Seeing this huge demand the bank manager offered Loan to 100 people at a time. But the demand was still that high and continued. He found that there are no Cash reserves left in the bank .So, He lend money from the Central Bank to meet the demand. so, now the bank is able to serve more entrepreneurs and Loan demands.
In the above story the Bank also sometimes face same situation like Raju Singh. They also lend money from some one else. They also have to pay interest for Lending money from Central Bank. That interest which banks must pay to central bank is known as Repo Rate. Full form of Repo Rate means Repurchase Rate. Some times Banks also have surplus Cash reserves which will put in Central bank. For this central bank pays rate to the Banks and this is called Reverse Repo rate and if the repo rate drop we see more Loans will be issued by Banks.