The Reserve Bank of India reduced penal interest rates on shortfalls in the cash-reserve-ratio and statutory-liquidity-ratio requirements with immediate effect on Friday.
The decision comes on the heels of the 50-basis-point cut in the repo rate, signalling an easing monetary policy stance.
For shortfalls in reserve requirements, the penal rate of the bank rate plus 3 percentage points has been reduced from 9.25% to 8.75%. The higher penal rate of bank rate plus 5 percentage points has been cut from 11.25% to 10.75%, according to a release by the central bank.
These adjustments reflect the new bank rate which now stands at 5.75% following the policy rate revision. This will provide instant relief to banks that occasionally fall short of mandated CRR and SLR levels.
CRR and SLR are key regulatory requirements that mandate banks to maintain a certain portion of their deposits in the form of liquid cash, which is CRR, and government securities, which is SLR.
The RBI's Monetary Policy Committee cut the benchmark repo rate by 50 bps for the third straight time to 5.5% with a 5:1 majority. Saugata Bhattacharya voted for a 25 bps cut in repo rate, while the others voted for a 50 bps cut.
The standing deposit facility rate, pegged 25 bps below the repo rate, stands at 5.25% and the marginal standing facility rate, which is 25 bps above the repo rate, is 5.75%.
The committee also changed its stance to 'neutral' from 'accommodative'.
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