Overview
The Bank Rate in India is the standard rate at which the Reserve Bank of India (RBI) is prepared to buy or re-discount eligible bills of exchange or other commercial paper under Section 49 of the RBI Act, 1934. In modern practice, it functions primarily as an administered benchmark aligned with the Marginal Standing Facility (MSF) rate rather than as an active liquidity tool for daily operations. As of October 2025, the Bank Rate stands at 5.75%, reflecting its alignment to the upper end of the RBI’s policy corridor.
Definition and Legal Basis
Legally, the Bank Rate is defined as the “standard rate at which the Reserve Bank is prepared to buy or re-discount bills of exchange or other commercial paper eligible for purchase under the Act,” as stated in Section 49 of the RBI Act, 1934. Historically, this rate served as a key monetary policy signal for market lending and deposit rates before the introduction of India’s corridor-based liquidity framework.
Evolution within India’s Monetary Framework
With the implementation of the Liquidity Adjustment Facility (LAF), RBI discontinued the rediscounting of bills, making the Bank Rate largely dormant as an operational liquidity instrument. Following the establishment of the Marginal Standing Facility (MSF), the Bank Rate was formally aligned to the MSF rate, serving primarily as a signaling and reference benchmark within the policy corridor.
Current Role and Applications
Today, the Bank Rate serves mainly regulatory and penal-calculation functions. For instance, penalties for shortfalls in reserve maintenance are computed as a spread over the Bank Rate. However, most market-linked rates, including those tied to lending and deposit pricing, now reference the repo rate or external benchmarks instead of the Bank Rate.
Relationship with Repo Rate, MSF, and the Policy Corridor
Under India’s corridor system, the repo rate acts as the operative policy rate that guides liquidity and monetary transmission, while the MSF rate represents the upper bound as a penal borrowing rate for banks. The Bank Rate is aligned to the MSF, meaning any change in the MSF automatically updates the Bank Rate. This linkage ensures consistency within the RBI’s monetary corridor.
Recent Trends and Historical Context
As per RBI’s published data, the Bank Rate was recorded at 6.25% in May 2025 and stands at 5.75% as of October 2025. Historically, it peaked near 8.5% in 2015 and reached a low of about 4.25% in 2022. These fluctuations reflect India’s transition from a Bank Rate-centric regime to a repo-driven operating framework, with the Bank Rate now serving a derived, reference-oriented function.
Impact on Policy Transmission
While changes in the Bank Rate once directly influenced commercial lending and deposit rates, the present monetary framework transmits policy shifts primarily through changes in the repo rate. Accordingly, banks and financial markets respond more to repo and corridor adjustments than to changes in the Bank Rate itself.
Practical and Compliance Implications for Banks
Banks today monitor the Bank Rate largely for regulatory purposes, particularly in calculating penalties related to reserve maintenance shortfalls. Compliance teams should ensure that internal systems and policy documents automatically update the applicable Bank Rate whenever RBI revises the MSF or the policy corridor.
Data Sources and Monitoring
Authoritative data on India’s Bank Rate is available from the Reserve Bank of India and financial data aggregators that track daily rate movements. Analysts and compliance officers can use these data sets for modeling, backtesting, and ensuring accuracy in internal financial or penalty computations.
