Lesson # 13 : The Market and The Banks

The Markets are influenced by The Banking system to a great extent. As the banks are the major source of money in the economy they also influence the market greatly. The market is affected by certain factors such as the interest rate, bank rate, repo rate etc which are determined by the Reserve Bank of India which also monitors the working of the banks.

If the loan rate is increased people will take less of loans. As a result, the amount of money in circulation will decrease. The bank’s will earn less profits and would in turn produce less earnings in that quarter. As a result the stock would tumble. Since the stocks of the banking sector are highly priced it would greatly affect the market and as a result the market would fall.The opposite would happen if the interest rate is decreased.

Another thing that should be understood is that since a greater number of these banks also offer Mutual Fund services and Demat Accounts. Therefore, as the people would invest less as the market falls the market would fall further as there wouldn’t be enough money to pull the market up.

Loads of wealth

Udit Sabharwal  { On behalf of Doodle inc}