What changed
The Bank Rate was revised upward by 50 basis points from 5.65% to 6.15%, effective immediately. Consequently, penal interest rates on reserve requirement shortfalls, which are linked to the Bank Rate, also increased: the lower penal rate moved from 8.65% to 9.15%, and the higher penal rate from 10.65% to 11.15%.
What it means for you
Banks will now face higher penalty charges for failing to maintain required reserves (CRR/SLR). This increases the cost of liquidity mismanagement and reinforces the need for precise reserve planning. The hike also signals tighter monetary conditions, potentially influencing lending and deposit rates.
What you must do
- Update internal systems to reflect the new Bank Rate of 6.15% for all linked calculations.
- Recompute penal interest rates on reserve shortfalls using the revised rates (9.15% or 11.15%).
- Communicate the change to treasury and compliance teams to ensure accurate reserve maintenance.
- Review liquidity buffers to avoid shortfalls and associated penalty costs.
Who it affects
All scheduled commercial banks, Treasury and ALM desks, Compliance and risk management teams
What is the new Bank Rate effective from September 30, 2022?
The Bank Rate has been increased by 50 basis points from 5.65% to 6.15% with immediate effect.
How does this change impact penal interest rates on reserve shortfalls?
Penal rates linked to the Bank Rate have risen: the lower rate is now 9.15% (Bank Rate + 3%) and the higher rate is 11.15% (Bank Rate + 5%).
Which banks are affected by this circular?
This circular is applicable to all banks, as stated in the RBI notification.