What changed
The Bank Rate was revised upward by 50 basis points from 4.65% to 5.15% with immediate effect. Consequently, penal interest rates on reserve requirement shortfalls, which are linked to the Bank Rate, also increased: the lower penal rate moved from 7.65% to 8.15%, and the higher rate from 9.65% to 10.15%.
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 and may prompt banks to manage liquidity more carefully to avoid penalties.
What you must do
- Update internal systems to reflect the new Bank Rate of 5.15% for calculating penal interest on reserve shortfalls.
- Communicate the revised penal rates (8.15% and 10.15%) to treasury and compliance teams immediately.
- Review liquidity positions to minimize shortfalls and avoid higher penalty costs.
- Align loan pricing and deposit rate strategies with the broader rate hike cycle signaled by this move.
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 June 8, 2022?
The Bank Rate has been increased by 50 basis points to 5.15% per annum, effective immediately.
How does this change affect penal interest rates on reserve shortfalls?
Penal rates linked to the Bank Rate have risen: the lower rate is now 8.15% (Bank Rate + 3%) and the higher rate is 10.15% (Bank Rate + 5%).
Which circular does this notification replace or update?
This circular updates the previous circular DOR.RET.REC.32/12.01.001/2022-23 dated May 4, 2022, on the same subject.