What changed
The Bank Rate was lowered by 25 basis points from 9.00% to 8.75%, effective January 29, 2013. Consequently, penal interest rates on shortfalls in reserve requirements, which are tied to the Bank Rate, were revised: the rate of Bank Rate plus 3.0 percentage points dropped from 12.00% to 11.75%, and Bank Rate plus 5.0 percentage points fell from 14.00% to 13.75%.
What it means for you
This reduction signals a slight easing in RBI's stance, potentially lowering borrowing costs for banks. For lenders, the lower penal rates on reserve shortfalls reduce the cost of non-compliance with reserve requirements, offering some relief on liquidity management.
What you must do
- Update internal systems to reflect the new Bank Rate of 8.75% for all linked calculations.
- Revise penal interest rate schedules for reserve shortfalls to 11.75% and 13.75% as per the revised rates.
- Communicate the change to treasury and compliance teams to ensure accurate application from January 29, 2013.
Who it affects
All Scheduled Commercial Banks, Local Area Banks, Treasury departments, Compliance teams
What is the effective date of the Bank Rate change?
The new Bank Rate of 8.75% is effective from January 29, 2013.
How are penal interest rates on reserve shortfalls affected?
Penal rates linked to Bank Rate are reduced: Bank Rate plus 3 percentage points becomes 11.75% (from 12.00%), and Bank Rate plus 5 percentage points becomes 13.75% (from 14.00%).