The bank rate is the standard rate at which the Reserve Bank of India is prepared to buy or rediscount bills of exchange or other commercial paper eligible for purchase under the RBI Act, 1934. In current practice it is aligned with the Marginal Standing Facility (MSF) rate and sits a little above the repo rate, and it is announced in the RBI's monetary policy statements. It is the reference rate for penal interest in several laws, including Section 16 of the MSMED Act (three times the bank rate) and Sections 143A and 148 of the NI Act (refund interest).
How the bank rate works in India
The RBI's Monetary Policy Committee sets the repo rate; the MSF rate and the bank rate move with it. The current figure is published on rbi.org.in under "Current Rates" and in each policy statement. For a Section 16 computation, the supplier looks up the bank rate for each month of delay, multiplies by three and applies it with monthly rests. Because the rate has moved over time, a claim covering several years is computed in segments.
- Repo rate: the rate at which banks borrow short-term from the RBI against securities.
- MSF rate: an emergency overnight borrowing rate for banks, normally repo plus 0.25%.
- Bank rate: aligned with the MSF rate; the statutory reference for penal interest.
Why it matters for getting paid
A supplier cannot compute a Section 16 claim without the bank rate, and buyers' finance teams will check it. Getting the rate wrong invites objection; getting it right, month by month, makes the claim credible. The multiplier of three means that even modest changes in the bank rate move the annual interest rate by a full percentage point or more. See Section 16 interest and compound interest with monthly rests.
How FundRaksha uses it
FundRaksha maintains a dated table of RBI bank rates and applies the correct rate to each month of delay in every notice and claim, so the interest figure is defensible before the Council. The dedicated advocate assigned within 24 hours handles the computation; the fee is 30% of the amount recovered.
Worked example (hypothetical)
Assume the bank rate was 6.75% for the first six months of a delay and 6.5% for the next six. For a ₹10,00,000 MSME debt: months 1 to 6 at 20.25% a year (1.6875% a month) give a balance of about ₹10,00,000 × (1.016875)^6 ≈ ₹11,05,700; months 7 to 12 at 19.5% a year (1.625% a month) give ₹11,05,700 × (1.01625)^6 ≈ ₹12,17,900. Total interest about ₹2,17,900. Had the rate been 6.5% throughout, interest would be about ₹2,13,400. The claim must state the rate used for each period and the source.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.