What changed
Until March 31, 2012, interest rates on deposits with NABARD/SIDBI/NHB for priority sector shortfalls and RIDF loans remained unchanged, linked to the pre-revised Bank Rate of 6%. From April 1, 2012, these rates are revised and linked to the current Bank Rate of 9.5%, with new spreads: deposit rates range from Bank Rate minus 2 to minus 5 percentage points depending on shortfall severity, and lending rates are Bank Rate minus 1.5 percentage points.
What it means for you
Banks will earn higher interest on deposits placed with NABARD/SIDBI/NHB for priority sector shortfalls, as the base rate has increased from 6% to 9.5%, though spreads have widened. Lending from RIDF will also become more expensive for borrowers, with rates now at 8% (9.5% minus 1.5%) compared to the earlier 6.5%. This aligns the cost of these funds with the tighter monetary policy stance.
What you must do
- Update internal systems to apply the new deposit and lending rate slabs from April 1, 2012.
- Communicate the revised interest rates to relevant treasury and priority sector monitoring teams.
- Review shortfall positions in agriculture and priority sector targets to assess impact on deposit costs.
- Ensure accurate calculation of interest on RIDF loans disbursed on or after April 1, 2012.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Treasury departments managing RIDF and similar fund deposits, Priority sector lending compliance teams, Borrowers availing loans from RIDF
What is the new interest rate on deposits for a shortfall of less than 2 percentage points?
For shortfalls less than 2 percentage points, the deposit rate from April 1, 2012 is Bank Rate (9.5%) minus 2 percentage points, i.e., 7.5%.
Are the old rates applicable for any period after March 31, 2012?
No, the old rates linked to the pre-revised Bank Rate of 6% apply only to deposits placed and loans disbursed up to March 31, 2012. From April 1, 2012, the revised rates linked to the current Bank Rate of 9.5% take effect.
Does this circular affect foreign banks differently?
Yes, for foreign banks, the shortfall is measured as the higher of shortfall in overall priority sector lending target or aggregate shortfall in sub-targets of MSE and exports, while for domestic banks it is based on agriculture lending target shortfall.