How are Interest Rates and Schemes created?

The interest rate that are associated with different products depend on the various underlying features of that product. Interest rate and schemes differ from institution to institution and the organisations has to analyze a number of factors before deciding the pricing or the interest rate of various schemes and products.

Factors which are considered while determining the pricing of asset products

• The amount involved
• The requirement of funds by the institution
• The term of the deposit
• The market conditions
• The current repo rates decided by Reserve Bank of India.
• Pre-mature clause
• The liquidity position of the institution, etc.

Factors which are considered while determining the pricing of liability products

• The amount involved
• The purpose or the end use of the fund
• The age of the borrower
• The annual income of the borrower
• Other related personal details
• The term of the loan
• Pre-payment clause
• The credit history of the borrower
• The succession plan in case of companies.
• The underlying security
• Availability of collateral, etc.

The interest rate of various schemes are decided by the Asset and Liability Committee of respective Institutions. They also analyze the maturity trends of various products and they also have to ensure the liquidity of funds.

Reserve Bank of India’s monetory policies and revision of rates like CRR, Repo Rate, Reverse Repo Rate has impact on deciding the Interest rates.