What changed
The Bank Rate was revised upward from 5.15% to 5.65%, a 50 bps increase, effective August 5, 2022. Consequently, penal interest rates on reserve shortfalls—linked to the Bank Rate—also rose: the lower penal rate moved from 8.15% to 8.65%, and the higher rate from 10.15% to 10.65%.
What it means for you
Banks will face higher costs for failing to meet reserve requirements (CRR/SLR), as penal rates are now pegged to the higher Bank Rate. This reinforces the monetary tightening stance, encouraging stricter reserve management. Lenders should review their liquidity buffers to avoid these elevated penalties.
What you must do
- Update internal systems to reflect the new Bank Rate of 5.65% for calculating penal interest on reserve shortfalls.
- Reassess liquidity positions to ensure CRR/SLR compliance and avoid the higher penal rates (8.65% or 10.65%).
- Communicate the revised penal rates to relevant treasury and compliance teams immediately.
- Monitor RBI announcements for any further rate changes linked to the Bank Rate.
Who it affects
All scheduled commercial banks, Treasury departments, Compliance and risk management teams, Banks with frequent reserve shortfalls
What is the new Bank Rate effective from August 5, 2022?
The Bank Rate has been increased by 50 basis points to 5.65% per annum, with immediate effect.
How does this change affect penal interest on reserve shortfalls?
Penal rates linked to the Bank Rate have risen: the lower rate is now 8.65% (Bank Rate + 3%) and the higher rate is 10.65% (Bank Rate + 5%).
Which circular does this notification replace?
This circular updates the previous one dated June 8, 2022 (DOR.RET.REC.44/12.01.001/2022-23) on the same subject.