The Reserve Bank of India (RBI) has announced the reduction in ceiling rate on export credit relating to the foreign currency by the banks.

The rate has been reduces from Libor plus 350 to Libor plus 200 basis points with immediate effect, according to the notification from the RBI.

The central bank has said that this cut would be applicable on the new advances. It has asked banks to not apply any extra charges like service charge and management charge except on the recovery of out-of-pocket expenses.

Similar changes will take effect where Euro Interbank Offered Rate has been used as a benchmark rate.

RBI also announced the reduction of the ceiling interest rate on the lines of credit with overseas banks from six months Libor plus 150 bps to six months Libor plus 100 bps.

The move from the bank is largely unexpected as many expect the interest rates to harden in the coming months.

The US Federal Reserve raised its discount rate yesterday from 0.5 per cent to 0.75 per cent to encourage banks to borrow from the private market.

In another development, RBI has asked the banks in the country to set up cash processing centers. The recommendation was made by a group headed by the RBI deputy governor Usha Thorat.

The move is aimed at RBI's Clean Note Policy where it asked banks to set up state of the art Cash Processing Centers at various key locations with enhanced processing and storage capacities.