Current RBI Bank Interest Rates 2021

RBI Interest Rate

Reserve Bank of India, the central banking institution of India controls the monetary policy of the Indian currency. The RBI Governor has recently announced the reduction of the important policy rates on 22 May 2020 at a monetary policy review meeting. The current repo rate as on 22 May 2020 is 4.00%, down from 4.40%. Following this rate cut, the RBI has announced a rate slash for reverse repo rate as well. In the latest rate cut, the central bank has reduced the reverse repo rate by 40 basis points which now stands at 3.35%, down from 3.75%. One of the main reasons behind the rate cut is to boost up the economy by increasing the cash flow in the market. The slash in the reverse repo rate will push the commercial banks to take their parked money out from the central bank and roll it in the market. The decision of cutting down the repo rate by 40 basis points was unanimously agreed upon by 5 out of the 6 committee members.

Some of the major functions of RBI include supervising banks and financial institutions, managing exchange rates, act as banker’s bank, control inflation, maintain deflation level and detect fake currency. From time to time, RBI controls liquidity and money supply in the market and thereby, ensures overall economic growth.

Types of Interest rates fixed by RBI

  • Repo Rate: We all approach banks when we face a financial shortfall. Likewise, banks approach the Central Bank, which is the Reserve Bank of India in our country, if they face a financial crisis. Repo Rate or repurchase rate is the rate at which the RBI lends funds to commercial banks and other financial institutions within the country.

Simply put, banks borrow funds from the Central Bank of India by selling government securities with a legal agreement to repurchase the securities sold on a given date at a predetermined price. The rate of interest charged by RBI while they repurchase the securities is called Repo Rate. The current Repo Rate as fixed by the RBI is 4.00%. The latest revision in the rates was made to mitigate the economic risks keeping the deteriorating economic situation in view.

On 7 August 2019, the Reserve Bank of India lowered the repo rate (key lending rate) by 35 basis points (bps). That was the fourth time this year that the repo rate had been cut by the RBI. However, in the latest revision, which was made on 4 October 2019, the repo rate was further decreased by 25 bps and the effective rate as on 4 October 2019 is 5.15% now.

After the 22 May 2020 rate cut, the reverse repo rate now stands at 3.35% and the Marginal Standing Facility Rate (MSF) and the Bank Rate stands at 4.65%.

History of Changes to Repo Rate

The Reserve Bank of India had increased the Repo Rate from 6% p.a. to 6.25% p.a. on 6 June 2018. This hike in repo rate was the first in more than four years. The last time the repo rate was increased before this was in January 2014. The Reserve Bank of India increased the Repo Rate again on the 1st of August 2018 from 6.25% to 6.50%. Even the reverse repo rate was increased to 6.25% from 6%, and the Marginal Standing Facility Rate went up by 25 basis points to 6.75% from 6.50%.

However, there was a decline of 25 basis points in the repo rate, reverse repo rate, and Marginal Standing Facility Rate on 7 February 2019, followed by another reduction by 25 basis points on 4 April 2019. The last change was made on 6 June 2019, wherein the repo rate was reduced to 5.75%. After the reduction of 35 bps on 7 August 2019, the repo rate stood at 5.40%. With the implementation of the latest revision, the repo rate now stands at 5.15% with effect from 4 October 2019.

The change in the repo rate will also affect all the other types of rates fixed by RBI and private banks, which are discussed in detail below.

Here’s a snapshot of all the repo rate changes that have occurred since October 2005:

Updated On Repo Rate
22 May 2020 4.00%
27 March 2020 4.40%
04 October, 2019 5.15%
07 August, 2019 5.40%
06 June, 2019 5.75%
04 April, 2019 6%
07 February, 2019 6.25%
01 August, 2018 6.50%
06 June, 2018 6.25%
07 February, 2018 6.00%
02 August, 2017 6.00%
04 October, 2016 6.25%
05 April, 2016 6.50%
29 September, 2015 6.75%
02 June, 2015 7.25%
04 March, 2015 7.50%
15 January, 2015 7.75%
28 January, 2014 8.00%
29 October, 2013 7.75%
20 September, 2013 7.50%
03 May, 2013 7.25%
17 March, 2011 6.75%
25 January, 2011 6.50%
02 November, 2010 6.25%
16 September, 2010 6.00%
27 July, 2010 5.75%
02 July, 2010 5.50%
20 April, 2010 5.25%
19 March, 2010 5.00%
21 April, 2009 4.75%
05 March, 2009 5.00%
05 January, 2009 5.50%
08 December, 2008 6.50%
03 November, 2008 7.50%
20 October, 2008 8.00%
30 July, 2008 9.00%
25 June, 2008 8.50%
12 June, 2008 8.00%
30 March, 2007 7.75%
31 January, 2007 7.50%
30 October, 2006 7.25%
25 July, 2006 7.00%
24 January, 2006 6.50%
26 October, 2005 6.25%
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  • Reverse Repo Rate: When Reserve Bank of India faces a financial crunch, they invite commercial banks and other financial institutions to deposit their excess funds into RBI treasury and offers them excellent interest rates. Similarly, when banks have excess funds, they voluntarily transfer it to RBI as their money is safe and secure with them. Generally, Reverse Repo Rate is always lesser than Repo Rate.
  • The Reverse Repo Rate was lowered by the RBI to 6.00% on 7 February 2019, followed by another reduction to 5.75% on 4 April, 2019. It was further brought down to 5.50% on 6 June 2019. It was further reduced to 4% after the 27 March 2020 revision, wherein the rates were reduced by 90 basis points. After the last revision, the reverse repo rate now stood at 3.75%. However, after the latest revision wherein a cut of 40 basis points was implemented, the rate now stands at 3.35%.

  • Marginal Standing Facility Rate (MSF): When banks face acute financial shortage, they can avail this special facility offered by RBI. In MSF, banks can borrow cash from RBI against their approved government securities. This option is preferred during emergency and critical situations only. MSF rate is always higher than Repo Rate as banks need the funds instantly. The Marginal Standing Facility rate currently stands at 4.65%.
  • Bank Rate: Bank Rate is the rate of interest charged by The Central Bank of India against loans offered to commercial banks. Bank rate is usually higher than repo rate. Unlike repo rate, bank rate directly affects the end user, in this case the customer, as high bank rates mean high lending rates.
  • When banks pay high interest rate to obtain loan from RBI, they in return charge the customer high interest rate to break even. Also known as “Discount Rate”, bank rate is a powerful tool used by the RBI to control liquidity and money supply in the market. The current Bank Rate is the same as Marginal Standing Facility rate, i.e. 4.65%.

  • Cash Reserve Ratio (CRR): In India, banks are required to retain a certain percentage of their deposits as liquid cash. However, banks prefer to deposit this liquid cash with the Reserve Bank of India, which is equivalent to having cash in hand. The percentage of the deposits that should be kept aside by banks is called Cash Reserve Ratio. CRR is fixed by The Reserve Bank of India. For example: If the bank deposit amount is Rs.100 and the CRR is 10% p.a., the liquid cash that the bank should have at all times is Rs.10. The remaining funds, which is Rs.90 in this case can be used for lending and investment purposes. RBI has the power to determine the lending capacity of the banks in India through CRR. They will increase CRR if they want to reduce the amount that the banks can lend and vice versa. The current CRR is 3% p.a.
  • Statutory Liquidity Ratio (SLR): At the end of every business day, banks are required to maintain a minimum ratio of their Time liabilities (when the bank has to wait to redeem their liabilities) and Net Demand (when bank can withdraw money from these accounts immediately) in the form of liquid assets like gold, cash and government securities. The ratio of time liabilities and liquid assets in demand is called Statutory Liquidity Ratio or SLR. The maximum SLR that The Reserve Bank of India can set is 40% p.a. However, the current SLR is set at 18.00% p.a.
  • Base Rate: The Reserve Bank of India sets a minimum rate below which banks in India are not allowed to lend to their customers. This minimum rate is called the Base Rate in banking terms. It is the minimum rate of interest the banks are permitted to charge their customers. The new Base Rate as fixed by RBI is in the range of 8.15% - 9.40% p.a.
  • Marginal Cost of Funds based Lending Rate (MCLR): RBI made changes to the existing Base Rate system this year. They have introduced Marginal Cost of Funds based Lending Rate or MCLR which is a new methodology to set the lending rates for commercial banks.
  • Previously, banks used to lend as per the Base Rate fixed by The Reserve Bank of India but with the introduction of MCLR, banks will have to lend using rates linked to their funding costs.

    Simply put, bank raises their funds through deposits, bonds and other investments. For the banks to function smoothly, there are costs involved like salaries, rents and other bills. Considering that banks also need to make profits every year, RBI has included the expenses of the bank and have come up with a formula which can be used by banks to determine their lending rate. With the reduction of repo rate, some banks have reduced MCLR up to 90 basis points. The current MCLR (overnight) fixed by the RBI stands in the range of 7.10% to 7.75%.

  • Savings Deposit Rate:The interest rate earned by an account holder for the amount maintained in their savings account is called savings deposit rate. The current Savings Deposit Rate as set by the RBI is in the range of 2.75% to 3.50%
  • Term Deposit Rate: Customers who deposit money into their account and agree to fix it till a particular date are awarded with the term deposit rate. The term deposit rate for senior citizens is usually 0.5% more than that for ordinary citizens. The interest rate of Term Deposits that the Reserve Bank of India has set ranges from 5.70% to 6.00% as on 17 March 2020.
  • Call Rate: It is the interest rate paid by the banks for lending and borrowing funds for a maturity period of 1 to 14 days. Call Rate is also known as the interbank borrowing rate. It deals with short-term lending between banks. The Call Rate set by the RBI as on 22 May 2020 is in the range of 2.00% to 4.50%.

In conclusion, policy rates are subjected to change without any warning as RBI constantly monitors the supply of money in the economy and takes decisions accordingly.

Frequently Asked Questions (FAQs) 

Does the Reserve Bank of India (RBI) allow the banks to accept deposits which are free of interest? 

No, banks are not allowed to accept deposits which are interest free. This is, however, not applicable to current accounts. The banks can accept interest free deposits for current accounts. 

 Do the rate of interest stipulations which apply to the loans (in Indian Rupees under the FCNR (B) schemes are also applicable to the loans avail in foreign currency? 

No, the rate of interest stipulations which apply to the loans (in Indian Rupees under the FCNR (B) schemes are also applicable to the loans avail in foreign currency. It is governed by the Foreign Exchange Department of the RBI. 

 Does the Reserve Bank of India (RBI) allow the banks to extend loans and advances to their customers below the Base Rate set by the central bank? 

No, banks and other lending institutions are not allowed to extend loans and advances to their customers under the Base Rate set by the Reserve Bank of India (RBI). Base Rate is the minimum rate for all types of loans and advances. 

News About RBI Bank Interest rates

  • RBI slashes repo rate by 75 basis points

    Reserve Bank of India (RBI) on Friday slashed the repo rate by 75 basis points. The cut in the rates meant that repo rate now stands at 4.40 percent, the lowest ever. Prior to this, it had hit the lowest ever in April 2009 when the rate was 4.74 percent.

    Repo rate in the rate at which the country’s central bank lends money to commercial banks in the event of any shortfall of funds.

    The central bank also cut the cash reserve ratio (CRR) and the reverse repo rate by 100 and 90 basis points. The new CCR shall be 3 percent and will be effective from March 28.

    It must be noted that the central bank advanced the policy review and held it over March 24, 25, and 26 to analyse the situation caused by the unprecedented lockdown in the country. Four of the six monetary policy committee members voted in favour of the rate cut and was warranted by disruptive force of Covid-19.

    02 Apr 2020

  • Interest Rates May Undergo Hike According to RBI

    In order to prop up the status of a retreating rupee in the country, Reserve Bank of India will supposedly increase the rate of interests, according to a Reuters poll of economists who also trimmed their near-term growth forecasts.

    A survey conducted in the month of July 2018 revealed that interest rates will remain stable majorly for a long period of time, however the recent drop in the value of rupee has led circumstances to alter themselves towards a different course altogether.

    The respondents of the Reuters poll also said that RBI Governor Urjit Patel and the Monetary Policy Committee will most likely introduce a 25 basis point rise to 6.75 percent at the 5 October 2018 policy meeting.

    03 October 2018

  • UBI hikes MCLR by 5 basis points

    United Bank of India has hiked its marginal cost of funds based lending rate (MCLR) by 5 basis points across all tenors. The change is effective from 14 September 2018, said the bank in a regulatory filing.

    The new rates are as follows:

    • 1-year MCLR is 8.85%
    • 6-month MCLR is 8.65%
    • 3-month MCLR is 8.55%
    • Overnight MCLR is 8.15%
    • 1-month MCLR is 8.40%

    The State Bank of India, ICICI Bank, and Bank of Baroda have also increased their MCLR in the last few weeks.

    25 September 2018

  • SBI increases lending rates, MCLR up by 20 basis points

    State Bank of India, the largest bank in the country has increased the marginal cost of funds based lending rates or its benchmark lending rates by 20 basis points. It is expected that auto, home, and other personal loans will become more expensive for the customers as almost all the retail loans use the one-year MCLR as benchmark. It is expected that many of the other banks will also increase the marginal cost of funds based lending rates in the coming weeks. The lending rates has been increased by State Bank of India by 20 basis points across all tenors up to three years. The one month and overnight marginal cost of funds based lending rates has now increased from 7.9 percent to 8.1 percent. The one year marginal cost of funds based lending rate from one year has increased from 8.25 percent to 8.45 percent. The 3 year marginal cost of funds based lending rate has also increased from 8.45 percent to 8.65 percent. The Reserve Bank of India recently raised the benchmark lending rates for the second time in as many months by 25 basis points.

    4 September 2018

  • Interest rates for fixed deposits hiked

    HDFC Bank and SBI have now increased their interest rates for fixed deposits of less than Rs.1 crore. The interest rate offered by HDFC Bank now stands at 7 percent for deposits that are below Rs.1 crore and having a tenure from 1 year to 5 years. The biggest benefit comes to the senior citizens, who other than the 0.5 percent higher interest will also be getting an exception of up to Rs.50,000 with the interest income. The income from fixed deposits is fully taxable for all the other general investors. The total return from a fixed deposit is just 4.8 percent in the highest tax bracket of 30 percent. The real rate of return will effectively be negative considering the inflation rate is at 5 percent. There is an option for the investors to get a hike in the interest rates provided by choosing fixed maturity plans and debt funds. While investments in debt funds have not generated favorable returns in the last year, analysts predict that these will start to generate decent returns in the coming months. Fixed maturity plans and debt funds are also much more tax efficient than fixed deposits. The gains are considered as long term gains if they are held for more than 3 years and are taxed at 20% after indexation. It is worthy to note that the rates for bulk deposits of more than Rs.1 crore have been slashed by the banks even after raising deposit rates for retail investors. State Bank of India has also slashed the interest rate on short term bulk deposits, reducing from 6.7 percent to 6.2 percent.

    7 August 2018

  • Lending rates increased by up to 10 bps by IDBI Bank

    State run IDBI bank has increased lending rates for a few tenures by 5 to 10 basis points. The new lending rates will be effective starting July 12. The one year marginal cost of funds based lending rates (MCLR) has now been increased by 10 basis points, increasing from 8.65 percent to 8.75 percent. The MCLR for six months has now been raised by raised 5 basis points, increasing from 8.45 percent to 8.50 percent. The three year and three month MCLR remain unchanged at 8.80 percent and 8.35 percent respectively. IDBI bank has however reduced the overnight MCLR by 5 basis points, reducing the rate from 8 percent to 7.95 percent. The base rate of the bank has also increased from 9.50 percent to 9.60 percent.

    13 July 2018

  • Gross NPA Recorded at 11.6% in March

    The gross non-performing assets ratio (NPA ratio) of the banking system in India could hit 12.2% come March next year, according to the financial stability report released by the Reserve Bank of India. The gross NPA in September last year was recorded at 10.2%, but has since increased and was recorded at 11.6% in March this year. According to the report, deterioration in macroeconomic conditions could see the gross NPA ratio get worse. Public sector banks’ gross NPA ratio could rise from 15.6% in March this year to 17.3% come March next year, while private banks could see the gross NPA ratio rise to 5.3% while foreign banks could see the gross NPA ratio rise to 4.8% come March next year.

    27 June 2018

  • RBI Hikes the Repo Rate and the Reverse Repo Rate by 25 Basis Points

    For the first time in 4 years, the Reserve Bank of India (RBI) has hiked the repo rate and the reverse repo rate by 25 basis points. While several economists predicted the increase, it came as a surprise that it was implemented in the current monetary policy.

    The repo rate and reverse repo rate has increased from 6% to 6.25% and 5.75% to 6% respectively. The last time a hike of this proportion was made was in 2014 when the repo rate was hiked to 8%. The RBI has been hinting at increasing the repo rate since the last policy meeting.  

    The RBI basis its decision on inflation and monetary policy on the performance of the Consumer Price Index (CPI). According to analysts, the RBI is expected to follow up the current hike with yet another one in order to control inflation.

    12 June 2018

  • EMI Burden Set to Rise As SBI Increases MCLR Rate

    The largest bank in India, the State Bank of India, has increased its MCLR by 10 basis points for all tenures starting from the 1st of June 2018. Hikes in MCLR usually mean a hike in the interest to be paid by borrowers unless the margin on loans is lowered by the bank to absorb the hike. Marginal Cost of Lending Rate or MCLR is the most important factor that determines the cost of a loan so far as borrowers are concerned. The increases comes only two days prior to the Reserve Bank of India’s announcement of the bi-monthly monetary policy, and it is the second increase in MCLR by the State Bank of India in 2018 following the first increase in March.

    6 June 2018

  • Up to Rs.20 lakh gold loan offered by SBI

    Potential borrowers aged 21 years and above with a steady source of income can jointly or singly apply for a gold loan of minimum Rs.20,000 to maximum Rs.20 lakh at State Bank of India. The applicant can put up his or her gold coins and gold ornaments as collateral to obtain a gold loan from SBI at a low interest rate with minimum documentation. The maximum loan tenure of the SBI gold loan scheme is 36 months. The expected margin is 25% of the value of the gold. The processing fee levied by SBI to process a gold loan is 0.50% of the principal amount, plus GST. The current interest rate on SBI gold loan is 7.95% p.a. and the effective rate is 9.95% p.a. The applicant will have to pay the gold appraiser charges as well.

    3 May 2018

  • Deutsche Bank: Crude oil price rise may prompt RBI repo rate hike in June

    Deutsche Bank expects the Reserve Bank of India (RBI) to hike the repo rate in the month of June by 25 bps (basis points). The repo rate has been kept unchanged for a 4th time in a row at 6% so far. Now, given the sharp increase in Brent crude oil prices in the past few months, Deutsche Bank expects the RBI to hike the repo rate to 6.25% in June, followed by another hike in the start of next year by 25 bps. If the repo rate hasn't been hiked in June, then the hike will hopefully happen in August as stated by Deutsche Bank which also maintains that a total of 75 bps rate hike is expected in this cycle.

    26 April 2018

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