Ask NiyaAs per the RBI Act, the bank rate is the standard rate at which the Reserve Bank of India is willing to buy or rediscount bills of exchange or other eligible commercial paper.
According to the Chakravarty Committee report, the RBI could effectively influence banking operations through the bank rate policy.
Interest rates on RBI credit to the commercial sector were linked to the bank rate, enhancing its significance in monetary transmission.
In July 1981, the bank rate was increased from 9% to 10%, triggering a corresponding rise in refinance rates for food and export credit, along with certain special facilities.
Although the Chakravarty Committee emphasized the importance of the bank rate, it did not recommend further changes during the latter half of the 1980s.
The bank rate remained unchanged at 10% throughout the period till 1991-92.
After the initiation of financial sector reforms in the early 1990s, the bank rate temporarily lost its prominence as the main monetary policy instrument.
In the mid-1990s, the bank rate was reactivated, regaining importance as the rate at which refinance would be granted and serving as the benchmark or "reference rate" for the financial system.
During 1997-98, the bank rate was repositioned to reflect monetary policy stance and liquidity conditions, serving as both a reference rate and a signalling tool.
To reflect easing liquidity, the rate was reduced in three successive 1% steps during April, June, and October 1997, bringing it down to 9% per annum by October 22, 1997.
Altogether, the bank rate was altered five times during the fiscal year 1997–98, reflecting active monetary management post-liberalization.
The current bank rate in India stands at 5.75% (As on 06 Jun 2025).
This reflects the evolving role of the bank rate as an active monetary policy instrument in the post-reform and globalisation era.
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