What changed
The Bank Rate for UCBs was reduced from 8.75% to 8.50%, a 25 basis point cut, effective March 19, 2013. Penal interest rates on reserve requirement shortfalls, linked to the Bank Rate, were revised: the existing rates of Bank Rate plus 3% (11.75%) and plus 5% (13.75%) became 11.50% and 13.50% respectively. The interest rate on refinance for SSI under Section 17(2)(bb) read with 17(4)(c) of the RBI Act also dropped to 8.50%.
What it means for you
Urban co-operative banks will face lower penal charges for reserve shortfalls, easing compliance costs. The reduced Bank Rate signals a slightly accommodative monetary stance, potentially lowering borrowing costs for UCBs accessing SSI refinance. Banks should update their systems to reflect the new penal rates and refinance rate immediately.
What you must do
- Update internal systems and loan pricing models to reflect the new Bank Rate of 8.50%.
- Revise penal interest rate calculations for reserve shortfalls to 11.50% and 13.50% as applicable.
- Adjust the interest rate on SSI refinance availed under Section 17(2)(bb) to 8.50%.
- Acknowledge receipt of this circular to the respective Regional Office of RBI.
Who it affects
All Primary (Urban) Co-operative Banks, Banks availing SSI refinance under Section 17(2)(bb), Banks with reserve requirement shortfalls
What is the new Bank Rate for UCBs effective March 19, 2013?
The Bank Rate has been reduced by 25 basis points from 8.75% to 8.50%.
How are penal interest rates on reserve shortfalls affected?
Penal rates, which are Bank Rate plus 3% or 5%, have been revised to 11.50% and 13.50% respectively, down from 11.75% and 13.75%.
Does this circular affect SSI refinance rates?
Yes, the interest rate on refinance for SSI under Section 17(2)(bb) read with 17(4)(c) of the RBI Act has been revised to 8.50%.