{"id":14214,"date":"2026-05-27T07:39:20","date_gmt":"2026-05-27T07:39:20","guid":{"rendered":"https:\/\/lemonn.co.in\/blog\/glossary\/repo-transaction\/"},"modified":"2026-05-27T07:39:20","modified_gmt":"2026-05-27T07:39:20","slug":"repo-transaction","status":"publish","type":"glossary","link":"https:\/\/lemonn.co.in\/blog\/glossary\/repo-transaction\/","title":{"rendered":"Repo Transaction"},"content":{"rendered":"

A repo (repurchase agreement) is a short-term borrowing arrangement where one party sells securities to another with an agreement to buy them back at a specified price on a later date. The difference between the sale price and the repurchase price represents the interest on the borrowing. Repos are a key tool in money market operations and are central to the RBI’s liquidity<\/a> management framework.<\/p>\n

What Is a Repo Transaction<\/a>?<\/h2>\n

In a repo, a borrower sells securities (typically government bonds<\/a>) and simultaneously agrees to repurchase them at a higher price. From the lender’s perspective, the same transaction is called a reverse repo.<\/p>\n

The RBI uses repos and reverse repos to manage liquidity in the banking system:<\/p>\n

– **Repo**: RBI lends to banks by buying their government securities; banks promise to buy them back at the repo rate<\/a>. Injects liquidity.
\n– **Reverse Repo \/ SDF**: RBI borrows from banks by selling government securities; banks promise to sell them back. Absorbs excess liquidity.<\/p>\n

Components of a Repo<\/h2>\n

– **Haircut**: the difference between the market value<\/a> of securities and the cash lent. Protects the lender against a fall in security value.
\n– **Repo rate**: the annualised interest rate for the borrowing period
\n– **Term**: from overnight to several months (overnight repos are most common)<\/p>\n

Types of Repos<\/h2>\n

**Bilateral repos**: between two parties in the money market; typically between banks and broker<\/a>s
\n**Tri-party repos**: a custodian (third party) manages the security transfer between two parties
\n**RBI repo**: the RBI’s daily liquidity adjustment facility (LAF) through which it manages system liquidity<\/p>\n

Repo Rate vs Bank Repo<\/h2>\n

The RBI’s repo rate (currently 6.5% as of 2024) is the rate at which RBI lends to commercial banks overnight against government securities. This is different from repos transacted between banks and financial institutions in the money market.<\/p>\n

Practical Example<\/h2>\n

A bank has a temporary liquidity shortfall and holds government securities worth Rs 100 crore. It enters into a 1-day repo with another bank: it sells the securities for Rs 99.98 crore and agrees to buy them back the next day for Rs 100 crore. The Rs 0.02 crore difference is the one-day interest at the repo rate. The lender holds the securities overnight as collateral.<\/p>\n

Key Takeaways<\/h2>\n

– A repo is a short-term borrowing where securities are sold with an agreement to repurchase
\n– The RBI uses repos and reverse repos to inject or absorb liquidity from the banking system
\n– The repo rate is the cost of borrowing in RBI’s liquidity facility and is the key monetary policy<\/a> rate
\n– Haircut protects the lender from the risk of falling security prices
\n– Repos are the backbone of the Indian money market, enabling efficient short-term fund management<\/p>\n","protected":false},"excerpt":{"rendered":"

A repo (repurchase agreement) is a short-term borrowing arrangement where one party sells securities to another with an agreement to buy them back at a specified price on a later date. The difference between the sale price and the repurchase price represents the interest on the borrowing. Repos are a key tool in money market […]<\/p>\n","protected":false},"author":3,"featured_media":0,"menu_order":0,"template":"","meta":{"_uag_custom_page_level_css":"","footnotes":""},"class_list":["post-14214","glossary","type-glossary","status-publish","hentry"],"blocksy_meta":[],"uagb_featured_image_src":{"full":false,"thumbnail":false,"medium":false,"medium_large":false,"large":false,"1536x1536":false,"2048x2048":false,"web-stories-poster-portrait":false,"web-stories-publisher-logo":false,"web-stories-thumbnail":false},"uagb_author_info":{"display_name":"Team Lemonn","author_link":"https:\/\/lemonn.co.in\/blog\/author\/ashu\/"},"uagb_comment_info":0,"uagb_excerpt":"A repo (repurchase agreement) is a short-term borrowing arrangement where one party sells securities to another with an agreement to buy them back at a specified price on a later date. The difference between the sale price and the repurchase price represents the interest on the borrowing. Repos are a key tool in money market…","_links":{"self":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14214","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary"}],"about":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/types\/glossary"}],"author":[{"embeddable":true,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/users\/3"}],"version-history":[{"count":0,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14214\/revisions"}],"wp:attachment":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/media?parent=14214"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}