RBI Interest Rate Policy: JAIIB Notes on CRR, SLR & Base Rate (2026)

The Interest Rate Policy of RBI is one of the most exam-heavy topics in the JAIIB syllabus. And most candidates lose easy marks here simply because they confuse CRR. SLR, Base Rate and the deregulation rules.

This 2026 guide fixes that. We break down the RBI Interest Rate Policy into plain English. Link every concept to the way questions are actually framed in the exam.

And give you a clean revision table you can memorise the night before.

If you are sitting for JAIIB under the Indian Institute of Banking. Finance (IIBF). Treat this page as your one-stop revision note for the Principles &.

Practices of Banking (PPB) paper. By the end you will know exactly what RBI controls. What it has deregulated, and which numbers examiners love to test.

What Is the RBI Interest Rate Policy?

The Interest Rate Policy is the set of rules through. The Reserve Bank of India influences the cost of money in the economy. It decides. Interest rates banks can set freely. Which ones RBI continues to control directly.

Historically. The policy stance is communicated in April as part of the annual monetary policy statement. And RBI then reviews it through bi-monthly policy meetings during the year.

For the exact current calendar and rates. Always confirm on the latest official IIBF notification and the RBI website. Because these can change.

The big idea is simple. RBI no longer micromanages most interest rates. Instead.

It has deregulated them. Letting market forces and individual banks decide. While keeping a few strategic controls.

Reserve requirements to protect depositors and transmit monetary policy.

Deregulation of Interest Rates: What Banks Decide vs What RBI Controls

This is the heart of the topic. And a favourite for one-mark questions. Read each point as a rule.

1. Term deposits: RBI has deregulated interest rates on bank term deposits. Except for FCNR (B) deposits, where ceilings still apply.
2. Domestic savings deposits: The rate has been deregulated. Is now decided by each bank.
3. Advances (loans): Interest on advances is largely deregulated. With the classic exception of DRI (Differential Rate of Interest) advances. Traditionally pegged at 4% p.a.
4. Who fixes the rates: Interest on deposits. Advances is decided by the Board of Directors of the bank. Or by the Asset Liability Management Committee (ALCO) if the Board delegates that power.
5. Benchmark linkage: Lending rates on advances are linked to the bank's internal benchmark. Which varies from bank to bank.
6. Base Rate switch: RBI directed banks to adopt the Base Rate concept in place of BPLR with effect from 1 July 2010.

Base Rate: The Floor for Bank Lending

The Base Rate is the minimum interest rate below. A bank will generally not lend to any borrower. It was introduced to make lending fairer. More transparent than the old BPLR regime.

Origin and Purpose of the Base Rate

• Introduced on the recommendations of the Deepak Mohanty Committee.
• Replaced the BPLR (Benchmark Prime Lending Rate) system with effect from 1 July 2010.
• Objectives: (i) enhance transparency in banks' lending rates. And (ii) enable a better assessment of monetary policy transmission.

Permitted Exceptions to the Base Rate

A bank may lend below the Base Rate only in specific cases:

• DRI advances (Differential Rate of Interest scheme).
• Loans to the bank's own employees.
• Loans to the bank's depositors against their own deposits.

What Goes Into the Base Rate?

The Base Rate captures the cost elements that are common across all categories of borrowers:

• Cost of funds
• Unallocatable overhead cost
• Negative carry on account of SLR and CRR
• Average return on net worth

Note for context: RBI later layered the MCLR. Then external benchmark (EBLR) systems on top of this framework. For JAIIB. Focus on the Base Rate fundamentals above. And confirm the currently applicable lending-rate system on the latest official IIBF notification.

Cash Reserve Ratio (CRR): Cash Parked With RBI

The Cash Reserve Ratio (CRR) is the share of a bank's deposits that it must keep as cash with RBI. It is a core tool of the Interest Rate Policy. A near-certain exam question.

Legal Basis and Key Rules of CRR

1. Scheduled Commercial Banks must maintain CRR under Section 42(1) of the RBI Act, 1934.
2. Banks keep a percentage of their Net Demand &. Time Liabilities (NDTL) as cash with RBI.
3. Following the amendment to Section 42(1) effective April 2007. There is no floor and no ceiling on CRR. RBI fixes the rate.
4. The required CRR is based on a bank's NDTL as on the last Friday of the second preceding fortnight.
5. Banks must maintain a daily average balance. The balance on any single day must not fall below 95% of the required average daily balance.
6. RBI does not pay interest on CRR balances (w.e.f. 31 March 2007).
7. Reporting: CRR is reported through the Form A return under Section 42(2). Sent fortnightly.

Penalty for CRR Shortfall

If a bank fails to maintain 95% of the required balance on any day of the fortnight:

• First day of default: penal interest at 3% per annum above the Bank Rate on the shortfall.
• If the shortfall continues the next day(s): penal interest rises to 5% per annum above the Bank Rate.

Statutory Liquidity Ratio (SLR): Liquid Assets You Must Hold

The Statutory Liquidity Ratio (SLR) is the minimum percentage of NDTL that a bank must maintain in the form of liquid assets such as cash. Gold, and approved securities — before lending out the rest.

Legal Basis and Key Rules of SLR

1. SLR is maintained under Section 24 of the Banking Regulation Act.
2. After the amendment to Section 24. The earlier minimum SLR floor of 25% was withdrawn. RBI is now free to fix the minimum. And SLR can be raised to a maximum of 40% of NDTL.
3. Reporting: SLR is reported through a monthly statement on Form VIII under Section 24 of the BR Act.

Assets Eligible for SLR

SLR can be held in the form of:

• Cash
• Gold, valued at a price not exceeding the current market price
• Unencumbered approved securities, valued as specified by RBI from time to time
• Cash balance with other banks
• Excess cash balance with RBI

A Cash Management Bill (CMB) issued by the Government of India is treated as a Government of India T-Bill. Therefore qualifies as an SLR security.

Penalty for SLR Shortfall

The penal structure mirrors CRR:

• First day of default: 3% per annum above the Bank Rate on the shortfall.
• If it continues: 5% per annum above the Bank Rate.

CRR vs SLR vs Base Rate: Quick Comparison Table

Memorise this table. You have covered roughly 80% of what the exam asks on this topic.

How to Study This Topic for JAIIB (A Practical Plan)

Reading is not enough. Use this simple how-to routine to lock the concepts in.

1. Build the skeleton first. Memorise the three "section numbers" — CRR = 42(1) RBI Act. SLR = 24 BR Act, and Base Rate = 1 July 2010. These anchors unlock most questions.
2. Group the exceptions. Make one flashcard for "below Base Rate" cases. One for "deregulation exceptions" (FCNR-B. DRI). Examiners test exceptions far more than the rule itself.
3. Drill the numbers. 95% daily CRR balance, 40% SLR cap, 3%/5% penalties, 4% DRI. Write them out from memory daily.
4. Apply, don't just read. Attempt topic-wise mock tests after every study session so recall becomes automatic under time pressure.
5. Revise with the table. The CRR vs SLR vs Base Rate table above is your final-night cheat sheet.

Common Mistakes Candidates Make

• Confusing CRR and SLR laws. CRR is the RBI Act; SLR is the Banking Regulation Act. Swap them and you lose the mark.
• Thinking CRR earns interest. It does not — RBI pays no interest on CRR balances.
• Believing SLR still has a 25% minimum. That floor was withdrawn; only the 40% maximum remains relevant.
• Assuming all rates are deregulated. Remember the holdouts: FCNR (B) deposits and DRI advances.
• Treating the Base Rate as something RBI sets. RBI gave the framework; each bank computes its own Base Rate.
• Quoting outdated figures in the exam. Current CRR/SLR percentages change — for live numbers. Always confirm on the latest official IIBF notification.

Frequently Asked Questions (FAQ)

What is the RBI Interest Rate Policy in simple terms?

It is RBI's framework deciding. Interest rates banks can set on their own. Which RBI continues to control. Most deposit and lending rates are deregulated. While reserves like CRR and SLR stay under RBI's direct control.

What is the difference between CRR and SLR?

CRR is cash kept with RBI under Section 42(1) of the RBI Act. With no fixed floor or ceiling. SLR is liquid assets (cash.

Gold. Approved securities) held by the bank itself under Section 24 of the Banking Regulation Act. Capped at a maximum of 40% of NDTL.

Why was the Base Rate introduced instead of BPLR?

The Base Rate. Introduced on the Deepak Mohanty Committee's recommendation from 1 July 2010. Improved transparency in lending rates. Allowed better assessment of how monetary policy is transmitted to borrowers. Both weak spots of the old BPLR system.

When can a bank lend below the Base Rate?

Only in defined cases: DRI advances. Loans to the bank's own employees. And loans to depositors against their own deposits. For everyone else, the Base Rate acts as a floor.

What penalty applies for a CRR or SLR shortfall?

Penal interest of 3% per annum above the Bank Rate applies on the shortfall for the first day. Rising to 5% per annum above the Bank Rate if the shortfall continues on the following day(s).

Final Word: Turn This Topic Into Guaranteed Marks

The RBI Interest Rate Policy looks dense, but it rewards structured revision. Lock in the section numbers. The deregulation exceptions. The reserve limits and the penalty rates. And you convert one of PPB's trickiest areas into easy, repeatable marks.

Keep your notes close. Test yourself often. And revise the comparison table until it is second nature.

Do that. And this chapter will work for you on exam day. Not against you.

You have got this.

Related Guides

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