What changed
The fixed repo rate under LAF was reduced by 100 basis points from 6.5% to 5.5% with immediate effect. Accordingly, the interest rate on the Special Refinance Facility (SRF) for scheduled commercial banks (excluding RRBs) was aligned to the new repo rate, dropping to 5.5% from January 3, 2009.
What it means for you
Banks can now access the SRF at a lower cost of 5.5%, reducing their funding expenses. This rate cut is part of RBI's broader easing to support liquidity and credit flow during the 2008-09 financial stress. Banks should factor this cheaper refinance into their liquidity management and lending strategies.
What you must do
- Update internal systems to reflect the new SRF rate of 5.5% effective January 3, 2009.
- Review liquidity positions and consider availing SRF at the reduced rate to lower funding costs.
- Communicate the rate change to treasury and ALM teams for accurate cost-of-funds calculations.
- Monitor RBI's future repo rate moves for potential further adjustments to SRF pricing.
Who it affects
All scheduled commercial banks (excluding Regional Rural Banks), Treasury departments, ALM and liquidity management teams
What is the new SRF rate and from when is it effective?
The SRF rate is reduced to 5.5%, effective from January 3, 2009, following the repo rate cut.
Which banks are eligible for this SRF?
All scheduled commercial banks except Regional Rural Banks (RRBs) are eligible.
Why did RBI reduce the SRF rate?
The reduction aligns with the 100 bps cut in the repo rate under LAF, aimed at easing liquidity and supporting bank lending during the economic slowdown.