RBI raises bank rate to 9.5% for Urban Co-op Banks

The Reserve Bank has hiked bank rate for Primary (urban) Co-operative Banks by 3.5 per cent to 9.5 per cent with effective from February 13, 2012.

”...it is determined that the bank rate should normally stay aligned to the MSF (marginal standing facility) rate.

“Accordingly, it has been decided that with effect from the close of business of February 13, 2012, the bank rate (for UCBs) will stand increased by 350 basis points, from 6 per cent per annum to 9.50 per cent per annum,” RBI said in a notification today.

As the bank rate is a discount rate, “it should technically be higher than the policy repo rate,” said a notification issued to CEOs of all Primary (Urban) Co-operative Banks.

The RBI repo rate currently stands at 8.5 per cent while reverse repo rate is at 7.5 per cent.

Bank rate is the standard rate at which the Reserve Bank buys or re-discount bills of exchange or other commercial paper.

It is used as a penal rate which the banks have to pay for their failure to meet the mandatory Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).

Earlier on February 13, 2012, RBI had increased the bank rate for all scheduled commercial banks to 9.5 per cent from 6 per cent, after a gap of nine years.

The bank rate has been kept unchanged at 6 per cent since April 2003. (PTI)