Correct Option
The correct option is 2 only
Explanation
In the banking sector, financial intermediaries mobilize funds from surplus units (depositors) and channel them to deficit units (borrowers). The viability of this business model depends on the interest differential maintained by the bank.
Statement-wise Analysis
- Statement 1 is Incorrect: The Spread is technically defined as the difference between the interest rate charged by the bank on loans (assets) and the interest rate paid by the bank on deposits (liabilities). This differential is the primary source of income for a bank, covering operational costs and generating profit.
- Statement 2 is Correct: The spread represents the earnings of the commercial bank undertaking the intermediation, not the Reserve Bank of India (RBI). The RBI generates its own surplus through the management of foreign exchange reserves and government securities, distinct from the commercial operations of banks.
- Statement 3 is Incorrect: The spread is not fixed by the RBI. While the RBI influences the interest rate regime through monetary policy tools (like Repo Rate) and regulatory frameworks (like MCLR or EBLR), the specific spread is determined by individual banks based on their cost of funds, risk appetite, and market competition.
Key Takeaway
Banking Spread is the profit margin of commercial banks, calculated as the difference between lending and deposit rates. It is determined by market dynamics and internal bank policies, rather than being a fixed rate mandated by the central regulator.