What changed
The Bank Rate was increased from 8.75% to 9.00%, a 25 basis point hike, effective January 28, 2014. Consequently, penal interest rates on shortfalls in reserve requirements—linked to the Bank Rate—were revised upward: the lower penal rate moved from 11.75% to 12.00%, and the higher rate from 13.75% to 14.00%.
What it means for you
For RRBs and cooperative banks, this hike raises the cost of failing to meet reserve requirements (CRR/SLR). The revised penal rates—Bank Rate plus 3 or 5 percentage points—mean higher financial penalties for any shortfall. Banks must tighten liquidity management to avoid these increased charges, which directly impact their profitability.
What you must do
- Update your internal systems to reflect the new Bank Rate of 9.00% for all linked calculations.
- Recalculate penal interest charges on any reserve shortfalls using the revised rates (12.00% or 14.00%).
- Communicate the change to your treasury and compliance teams to ensure accurate reporting.
- Review your liquidity position to minimize shortfalls and avoid the higher penal costs.
Who it affects
All Regional Rural Banks (RRBs), State Cooperative Banks (StCBs), Central Cooperative Banks (CCBs)
Why was the Bank Rate increased?
The Bank Rate was raised by 25 bps to 9.00% following the repo rate hike announced in the Third Quarter Review of Monetary Policy 2013-14 on January 28, 2014.
How does this affect penal interest rates on reserve shortfalls?
Penal rates linked to the Bank Rate increased: the lower rate went from 11.75% to 12.00%, and the higher rate from 13.75% to 14.00%, effective January 28, 2014.
Which banks are impacted by this circular?
This circular applies to all Regional Rural Banks, State Cooperative Banks, and Central Cooperative Banks.