What changed
The Bank Rate was revised upward from 6.15% to 6.50%, a 35 bps increase, effective immediately. Consequently, penal interest rates on reserve requirement shortfalls—linked to the Bank Rate—also rose: the lower tier moved from 9.15% to 9.50%, and the higher tier from 11.15% to 11.50%.
What it means for you
Banks will face higher costs for failing to meet reserve requirements, as penal rates are now pegged to the new Bank Rate. This reinforces RBI's tightening stance, potentially squeezing liquidity and encouraging stricter reserve management. Lenders should review their reserve compliance processes to avoid increased penalties.
What you must do
- Update internal systems to reflect the new Bank Rate of 6.50% for calculating penal interest on reserve shortfalls.
- Communicate the revised penal rates (9.50% and 11.50%) to treasury and compliance teams immediately.
- Reassess reserve maintenance strategies to minimize shortfalls and avoid higher penalty costs.
- Monitor RBI circulars for any further rate adjustments or clarifications on applicability.
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 December 7, 2022?
The Bank Rate has been increased by 35 basis points from 6.15% to 6.50% with immediate effect.
How does this change affect penal interest rates on reserve shortfalls?
Penal rates linked to the Bank Rate are revised: the lower tier (Bank Rate plus 3%) moves to 9.50%, and the higher tier (Bank Rate plus 5%) moves to 11.50%.
Which banks are impacted by this circular?
This circular is applicable to all banks, as stated in the RBI notification.