What changed
The Bank Rate was reduced by 75 basis points from 10.25% to 9.50%, effective September 20, 2013. Consequently, penal interest rates on shortfalls in reserve requirements—linked to the Bank Rate—were revised downward: the existing rates of Bank Rate plus 3.0 percentage points (13.25%) and Bank Rate plus 5.0 percentage points (15.25%) became 12.50% and 14.50%, respectively.
What it means for you
For RRBs and cooperative banks, this reduction lowers the cost of penalties for failing to meet reserve requirements, improving their liquidity management flexibility. The move signals a softer monetary stance, potentially reducing funding costs for these lenders and supporting rural credit flow.
What you must do
- Update internal systems to reflect the new Bank Rate of 9.50% and revised penal interest rates (12.50% and 14.50%) for reserve shortfalls.
- Communicate the rate change to treasury and compliance teams to ensure accurate calculation of penalties.
- Review liquidity buffers to minimize shortfalls and take advantage of the lower penalty rates.
- Acknowledge receipt of this circular to your respective RBI Regional Office.
Who it affects
All Regional Rural Banks (RRBs), State and Central Co-operative Banks
What is the new Bank Rate effective from September 20, 2013?
The Bank Rate has been reduced by 75 basis points from 10.25% to 9.50%, effective September 20, 2013.
How do the revised penal interest rates work?
Penal rates on reserve shortfalls are now Bank Rate plus 3.0 percentage points (12.50%) or Bank Rate plus 5.0 percentage points (14.50%), depending on the duration of the shortfall.
Which institutions are covered by this circular?
This circular applies to all Regional Rural Banks (RRBs) and State and Central Co-operative Banks.