RBI asks banks to pay interest on savings account on quarterly basis

The Reserve Bank of India (RBI) has asked scheduled commercial banks to pay interest on savings banks account on a quarterly basis or shorter duration, a move which will benefit millions of savings account holders.

At present, banks credit interest on savings bank account on a half-yearly basis while interest on savings bank account is calculated on a daily basis since 1 April 2010.

In master directive issued on 3 March, RBI has asked scheduled commercial banks to pay interest on deposits of money (other than current account deposits) accepted by them or renewed by them in their domestic, ordinary non-resident (NRO), non-resident – external (NRE) accounts and foreign currency (non-resident) accounts (banks) scheme {FCNR(B) deposit account.

RBI said banks should have a comprehensive policy on interest rates on deposits duly approved by their boards of directors or any committee of the board to which powers have been delegated.

The rates should be uniform across all branches and for all customers and there should be no discrimination in the matter of interest paid on the deposits, between one deposit and another of similar amount, accepted on the same date, at any of its offices.

Interest rates payable on deposits should be strictly as per the schedule of interest rates disclosed in advance and should not be subject to negotiation between the depositors and the bank.

The interest rates offered should be reasonable, consistent, transparent and available for supervisory review/scrutiny as and when required.

All transactions, involving payment of interest on deposits should be rounded off to the nearest rupee for rupee deposits and to two decimal places for FCNR (B) deposits.

Also, RBI said, if a term deposit is maturing for payment on a non-business working day, banks should pay interest at the originally contracted rate on the original principal deposit amount for the non-business working day, intervening between the date of the maturity of the specified term of the deposit and the date of payment of the proceeds of the deposit on the succeeding working day.

In case of reinvestment deposits and recurring deposits, banks should pay interest for the intervening non-business working day on the maturity value.

Deposit accounts transferred from one bank branch to another bank branch on account of takeover of bank branches in rural and semi-urban centres should adhere to the conditions that such deposit accounts will continue to be governed by the terms of contract agreed to between the customer and the bank branch that is being taken over.

The same rate of interest should be payable till maturity on such transferred deposits, as was payable at the time of takeover of the branch.

While public sector banks offer 4 per cent interest on savings deposit, private players offer as much as 6 per cent.

The central bank had given freedom to commercial banks to fix savings bank deposit rates, While giving banks this freedom, RBI had said a uniform rate will have to be offered on deposits of up to Rs1 lakh.