Repo
or repurchase option is a means of short-term borrowing, wherein
banks sell approved government securities to RBI and get funds in
exchange. In other words, in a repo transaction, RBI repurchases
government securities from banks, depending on the level of money
supply it decides to maintain in the country's monetary system.
Reverse repo is the exact opposite of repo. In a reverse repo transaction, banks purchase government securities from RBI and lend money to the banking regulator, thus earning interest.
