The Reserve Bank of India (RBI) today announced a downward revision of its Bank Rate to 9.0 per cent from 9.50 per cent, and a subsequent reduction in all penal interest rates related to it, effective 17 April 2012.
Accordingly, RBI has advised banks that the interest rate on refinance for the small scale industry (SSI) also stands revised to 9.0 per cent with effect from 17 April 2012.
This will increase banks' liquidity as a lower Bank Rate reduces the amount banks have to give as penal interest on any shortfall of their reserve requirements.
The Bank Rate is the rate at which the RBI is prepared to buy or re-discount bills of exchange or other commercial paper eligible for purchase under that RBI Act, 1934.
RBI makes Bank Rate public from time to time.
Being the discount rate, the Bank Rate should technically be higher than the policy repo rate. The Bank Rate has, however, been kept unchanged at 6 per cent since April 2003. This was mainly for the reason that monetary policy signalling was done through modulations in the reverse repo rate and the repo rate under the Liquidity Adjustment Facility (LAF) (till 3 May 2011) and the policy repo rate under the revised operating procedure of monetary policy (from 3 May 2011 onwards).