What changed
The Bank Rate was lowered by 75 basis points from 10.25% to 9.50%, effective September 20, 2013. Consequently, penal interest rates on reserve requirement shortfalls, which are tied to the Bank Rate, were revised downward: the rate for shortfalls now stands at Bank Rate plus 3.0 percentage points (12.50%) or plus 5.0 percentage points (14.50%), down from the earlier 13.25% and 15.25%.
What it means for you
This reduction in the Bank Rate directly lowers the cost of penal interest for banks that fall short of reserve requirements, easing a compliance cost. For lenders, it signals a slightly looser monetary stance, potentially reducing overall funding costs and encouraging more lending. However, the impact is limited to penalty rates and does not directly affect other policy rates like the repo rate.
What you must do
- Update internal systems to reflect the new Bank Rate of 9.50% for calculating penal interest on reserve shortfalls.
- Communicate the revised penal interest rates (12.50% and 14.50%) to relevant treasury and compliance teams.
- Review any loan or deposit products that reference the Bank Rate to ensure alignment with the new rate.
- Monitor RBI announcements for any further changes to policy rates that may follow this adjustment.
Who it affects
All scheduled commercial banks, Local area banks, Treasury and compliance departments, Banks with frequent reserve shortfalls
What is the new Bank Rate effective from September 20, 2013?
The Bank Rate has been reduced from 10.25% to 9.50%, a cut of 75 basis points.
How does this change affect penal interest on reserve shortfalls?
Penal interest rates linked to the Bank Rate have been revised: for shortfalls, the rate is now Bank Rate plus 3.0 percentage points (12.50%) or plus 5.0 percentage points (14.50%), down from the previous 13.25% and 15.25%.
Does this Bank Rate cut impact other policy rates like the repo rate?
No, this circular only adjusts the Bank Rate and the penal rates tied to it. Other policy rates remain unchanged as per this notification.