RBI Bank Rate

What it means

The Bank Rate is one of the rates published by the Reserve Bank of India (RBI). "Bank rate" is not defined in the MSMED Act itself; it means the RBI's Bank Rate under the Reserve Bank of India Act, 1934. It changes from time to time, so always check the current figure on the RBI website. It is different from the rate your own bank charges on loans.

Why it matters for getting paid

Under Section 16 of the MSMED Act, a buyer who pays a micro or small supplier late must pay compound interest, with monthly rests, at three times the bank rate notified by the RBI. Interest runs from the day after payment was due: goods delivered and accepted on 1 August with no written agreement should be paid by 16 August, and interest runs from 17 August.

For example, at a Bank Rate of 5.75% (RBI, November 2026) the MSMED rate is 17.25% a year, compounded monthly. Always check rbi.org.in for the rate on the date you calculate.

"Monthly rests" means the interest is added to the amount due every month, and next month's interest is calculated on that larger amount. Over several months this adds up quickly, which is why many buyers prefer to pay rather than face a claim before the Facilitation Council, now filed on the MSME ODR portal that replaced MSME Samadhaan.

When using this in a reminder or a demand letter:

• State which invoices and dates you are calculating from.
• Use the bank rate applicable for the period, and keep a note of your source.
• Show the working, so the buyer can check it.

This statutory rate applies only to Udyam-registered micro and small suppliers in manufacturing or services, not to retail or wholesale traders. The interest only starts after the due date, so a clear credit period matters. Work out the amount with the free MSME interest calculator.