What changed
The Bank Rate was revised upward from 6.50% to 6.75%, a 25 bps increase, effective immediately from February 8, 2023. Consequently, penal interest rates on reserve requirement shortfalls, which are linked to the Bank Rate, also rose: the lower penal rate moved from 9.50% to 9.75%, and the higher rate from 11.50% to 11.75%.
What it means for you
Banks will face higher costs for failing to maintain required reserves, as penal rates are now pegged to the higher Bank Rate. This could tighten liquidity management and increase pressure on banks to avoid shortfalls. The move aligns with the broader monetary tightening stance signaled in the February 2023 policy.
What you must do
- Update internal systems to reflect the new Bank Rate of 6.75% for calculating penal interest on reserve shortfalls.
- Communicate the revised penal rates (9.75% and 11.75%) to treasury and compliance teams immediately.
- Review reserve maintenance processes to minimize shortfalls and avoid higher penal charges.
- Assess impact on liquidity costs and adjust short-term funding strategies accordingly.
Who it affects
All scheduled commercial banks, Treasury and ALM desks, Compliance and risk management teams
What is the new Bank Rate effective from February 8, 2023?
The Bank Rate has been increased by 25 basis points from 6.50% to 6.75% with immediate effect.
How do the revised penal interest rates work?
Penal rates on reserve shortfalls are now Bank Rate plus 3 percentage points (9.75%) or Bank Rate plus 5 percentage points (11.75%), depending on the duration of the shortfall.
Which banks are impacted by this change?
This circular applies to all banks, meaning every scheduled commercial bank must comply with the revised Bank Rate and linked penal rates.