What changed
The Bank Rate was reduced by 75 basis points from 10.25% to 9.5%, effective September 20, 2013. Consequently, penal interest rates on reserve requirement shortfalls were revised downward: the rate for shortfalls now ranges from Bank Rate plus 3 percentage points (12.50%) to Bank Rate plus 5 percentage points (14.50%). The interest rate on refinance for small-scale industries under Section 17(2)(bb) read with Section 17(4)(c) of the RBI Act also dropped to 9.5%.
What it means for you
For Urban Co-operative Banks, this Bank Rate cut reduces the cost of penal charges for reserve shortfalls, easing liquidity pressure. The lower SSI refinance rate may encourage lending to small-scale industries. Banks should update their systems to reflect the new penal rates and refinance terms immediately.
What you must do
- Update internal systems to apply the revised Bank Rate of 9.5% from September 20, 2013.
- Recalculate penal interest rates on reserve shortfalls using the new Bank Rate plus 3% (12.50%) or plus 5% (14.50%) as applicable.
- Adjust the interest rate on SSI refinance to 9.5% for all eligible advances.
- Communicate the changes to relevant departments and ensure compliance with the circular.
Who it affects
All Primary (Urban) Co-operative Banks, Branches handling reserve requirements and penal interest, Lending teams dealing with SSI refinance
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 9.5%.
How are penal interest rates on reserve shortfalls affected?
Penal rates are now Bank Rate plus 3% (12.50%) or plus 5% (14.50%), down from the previous 13.25% and 15.25% respectively.
Does this change impact SSI refinance rates?
Yes, the interest rate on refinance for small-scale industries under Section 17(2)(bb) read with Section 17(4)(c) of the RBI Act is revised to 9.5%.