What changed
The Bank Rate was reduced from 9.0% to 8.75%, a 25 basis point cut, effective October 29, 2013. Consequently, all penal interest rates linked to the Bank Rate—specifically those on shortfalls in reserve requirements—were revised downward by 25 bps. For example, the penal rate of Bank Rate plus 3 percentage points fell from 12.00% to 11.75%, and the rate of Bank Rate plus 5 percentage points fell from 14.00% to 13.75%.
What it means for you
For RRBs and co-operative banks, this reduces the financial penalty for failing to meet reserve requirements (CRR/SLR). Lower penal rates ease liquidity pressure and reduce the cost of inadvertent shortfalls. Banks should update their internal systems and communicate the revised rates to relevant departments to ensure accurate calculation of penalties.
What you must do
- Update internal systems and manuals to reflect the new Bank Rate of 8.75% and revised penal interest rates.
- Communicate the revised penal rates to treasury, compliance, and operations teams handling reserve maintenance.
- Ensure that any penal interest charged on shortfalls from October 29, 2013 onward uses the new 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 effective date of the Bank Rate change?
The Bank Rate was reduced to 8.75% with effect from October 29, 2013, as announced in the Second Quarter Review of Monetary Policy 2013-14.
Which penal rates are affected by this change?
Penal interest rates on shortfalls in reserve requirements that are linked to the Bank Rate. The two tiers are: Bank Rate plus 3 percentage points (now 11.75%) and Bank Rate plus 5 percentage points (now 13.75%).
Do we need to take any action to acknowledge this circular?
Yes, the circular instructs you to acknowledge receipt to your respective RBI Regional Office.