What changed
The Bank Rate was reduced from 8.50% to 8.25%, a 25 basis point cut, effective May 3, 2013. Consequently, penal interest rates on reserve requirement shortfalls—previously Bank Rate plus 3% (11.50%) or plus 5% (13.50%)—are now 11.25% and 13.25% respectively. The interest rate on refinance for SSI under Section 17(2)(bb) read with Section 17(4)(c) of the RBI Act also dropped to 8.25%.
What it means for you
Urban co-operative banks will face lower penalty costs for reserve shortfalls, easing liquidity management pressures. The reduced SSI refinance rate may encourage more lending to small-scale industries. However, the overall impact is modest as the Bank Rate is a signaling rate, not a direct policy rate for most lending.
What you must do
- Update internal systems to reflect the revised penal interest rates of 11.25% and 13.25% for reserve shortfalls.
- Adjust the SSI refinance rate to 8.25% for any new or outstanding refinance under Section 17(2)(bb).
- Communicate the changes to treasury and compliance teams to ensure accurate penalty calculations.
- Acknowledge receipt of this circular to your regional RBI office.
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 effective from May 3, 2013?
The Bank Rate has been reduced by 25 basis points from 8.50% to 8.25%.
How do the revised penal interest rates work?
Penal rates on reserve shortfalls are now Bank Rate plus 3% (11.25%) or plus 5% (13.25%), depending on the duration of the shortfall.
Does this affect SSI refinance rates?
Yes, the interest rate on refinance for SSI under Section 17(2)(bb) read with Section 17(4)(c) of the RBI Act is also revised to 8.25%.