Bank Rate

Definition

The long-term rate at which the Reserve Bank of India lends to banks against eligible securities without any repurchase agreement, now aligned with the marginal standing facility rate.

Key points

• The oldest policy rate, defined under Section 49 of the RBI Act, 1934, as the rate at which the RBI buys or rediscounts eligible bills.
• It is a penal rate linked to long-term refinance, unlike the concept repo rate, which is a short-term collateralised rate.
• Since 2012 the bank rate moves in lockstep with the MSF rate, so it effectively tracks the repo rate plus the corridor margin.
• Penalties for shortfalls in the CRR and SLR are charged with reference to the bank rate.
• Largely a signalling and penalty rate today, since the repo rate is the operative policy tool.

Why it matters for CAPF

The distinction between the bank rate (long-term, no repurchase) and the repo rate (short-term, with repurchase), and its statutory basis in the RBI Act, are common money-and-banking items.

Common confusion

Bank rate (long-term lending, no repurchase, aligned with MSF) versus the repo rate (short-term, collateralised, the operative tool); the bank rate is not the same as the base rate charged to customers.

Parent note

money and banking and the rbi