What changed
The Bank Rate was reduced from 9.00% to 8.75%, a 25 basis point cut, effective January 29, 2013. Penal interest rates on reserve requirement shortfalls, linked to the Bank Rate, were revised downward accordingly. The interest rate on refinance for small-scale industries under Section 17(2)(bb) read with Section 17(4)(c) of the RBI Act also dropped to 8.75%.
What it means for you
Urban Co-operative Banks will face lower penal charges for reserve shortfalls, easing liquidity-related costs. The reduced SSI refinance rate may encourage lending to small industries. This aligns with the monetary policy stance to support economic activity.
What you must do
- Update internal systems to reflect the new Bank Rate of 8.75% for penal interest calculations.
- Communicate revised penal interest rates to relevant departments handling reserve maintenance.
- Review SSI lending operations to leverage the lower refinance rate of 8.75%.
- Acknowledge receipt of this circular to your Regional Office as instructed.
Who it affects
All Primary (Urban) Co-operative Banks, Branches handling reserve requirement compliance, SSI lending divisions within UCBs
What is the new Bank Rate effective from January 29, 2013?
The Bank Rate has been reduced by 25 basis points from 9.00% to 8.75%.
How does this affect penal interest rates on reserve shortfalls?
Penal rates linked to the Bank Rate are revised: the lower rate (Bank Rate plus 3.0 percentage points) drops from 12.00% to 11.75%, and the higher rate (Bank Rate plus 5.0 percentage points) from 14.00% to 13.75%.
Does this circular impact SSI refinance?
Yes, the interest rate on refinance for small-scale industries under Section 17(2)(bb) read with Section 17(4)(c) of the RBI Act is now 8.75%.