What changed
The Bank Rate was lowered from 9.5% to 9.0%, a reduction of 50 basis points, effective October 7, 2013. Consequently, penal interest rates on reserve requirement shortfalls are now Bank Rate plus 3% (12.0%) or plus 5% (14.0%), down from 12.5% and 14.5% respectively. The interest rate on refinance for small-scale industries under Section 17 of the RBI Act also dropped to 9.0%.
What it means for you
Urban cooperative banks will face lower penalty costs for reserve shortfalls, easing liquidity pressure. The reduced Bank Rate may signal a softer monetary stance, potentially lowering borrowing costs for banks and their customers. Lenders should reassess their pricing of penal charges and SSI-linked loans to align with the new rates.
What you must do
- Update internal systems to reflect the new Bank Rate of 9.0% for all linked calculations.
- Revise penal interest rates on reserve shortfalls to 12.0% or 14.0% as applicable.
- Adjust interest rates on SSI refinance loans to 9.0% effective October 7, 2013.
- Communicate the changes to relevant departments and ensure compliance in reporting.
Who it affects
All Primary (Urban) Co-operative Banks, Borrowers with SSI refinance loans, Banks with reserve requirement shortfalls
What is the new Bank Rate effective from October 7, 2013?
The Bank Rate has been reduced by 50 basis points from 9.5% to 9.0%.
How are penal interest rates on reserve shortfalls affected?
Penal rates are now Bank Rate plus 3% (12.0%) or plus 5% (14.0%), down from the previous 12.5% and 14.5%.
Does this circular apply to all urban cooperative banks?
Yes, it applies to all Primary (Urban) Co-operative Banks as addressed by RBI.