What changed
Previously, RBI provided accommodation to State Co-operative Banks for general banking business at the Bank Rate. The circular now mandates that such loans will be priced at the repo rate instead.
What it means for you
State Co-operative Banks will now pay interest on RBI borrowings linked to the repo rate, which is typically lower than the Bank Rate in a normal rate cycle. This change makes liquidity support more responsive to monetary policy signals and could reduce borrowing costs for SCBs when repo rate is below Bank Rate.
What you must do
- Update internal pricing models for RBI borrowings to reference the repo rate instead of Bank Rate.
- Inform treasury and ALM teams about the revised interest calculation for clearing and liquidity adjustments.
- Review liquidity management strategies to align with repo-linked borrowing costs.
- Ensure compliance with the new rate for all fresh and outstanding accommodation under Section 17(4)(a).
Who it affects
State Co-operative Banks, Treasury departments of SCBs, RBI's rural planning and credit department
Does this circular apply to all types of accommodation under Section 17(4)(a)?
Yes, the circular specifies that all loans and advances for general banking business, including clearing adjustments and liquidity, will now be charged at the repo rate.
When did this change take effect?
The circular was issued on September 30, 2011, and the change was effective from that date.
What was the previous rate for such accommodation?
Earlier, the interest was provided at the Bank Rate as per RBI circular dated April 20, 1999.