RBI/2011-12/54
DBOD.No.Dir.BC. 9 /13.03.00/2011-12
July 1, 2011
Ashadha 10,1933 (Saka)
All Scheduled Commercial Banks
(excluding RRBs)
Dear Sir / Madam
Master Circular on Interest Rates on Rupee Deposits held in Domestic, Ordinary
Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts
Please refer to the
Master Circular DBOD No. Dir. BC. 10/13.03.00/ 2010-11 dated
July 1, 2010 consolidating the instructions/guidelines issued to banks till June
30, 2010 relating to Interest Rates on Rupee Deposits held in Domestic, Ordinary
Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts. The Master
Circular has been suitably updated by incorporating the instructions issued up
to June 30, 2011 and has been placed on the RBI website (http://www.rbi.org.in).
A copy of the Master Circular is enclosed.
Yours faithfully
(P.R.Ravi Mohan)
Chief General Manager
Encls: as above
Master Circular on Interest Rates on Rupee Deposits held in Domestic,
Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts
CONTENTS
- Purpose
To consolidate the directives on interest rates on Rupee Deposits held in
Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts
issued by Reserve Bank of India from time to time.
- Classification
A statutory guideline issued by the Reserve Bank in exercise of the powers
conferred by the Banking Regulation Act, 1949.
- Previous instructions
This Master Circular consolidates the instructions on the above subject
contained in the circulars listed in Annex 4.
- Application
To all scheduled commercial banks, excluding Regional Rural Banks.
Structure
- INTRODUCTION
- GUIDELINES
2.1 Definitions
2.2 Minimum tenor and rates of interest payable on Savings deposits and Term
deposits.
2.3. Payment of interest on fixed deposit - Method of calculation of interest
2.4 Additional interest to AGID, NGIF and AFGIS
2.5 Discretion to Regional Rural Bank/Local Area Bank to pay additional interest
2.6 Discretion to pay additional interest not exceeding one percent on deposits
of bank’s staff and their exclusive associations
2.7 Discretion to pay additional interest on deposits of Chairman and Managing
Director and Executive Directors of the bank
2.8 Discretion to pay interest on current account maintained by RRBs with
sponsor bank
2.9 Discretion to pay interest on the minimum credit balance in the composite
cash credit account of a farmer
2.10 Deposit Scheme for Senior Citizens
2.11 Premature withdrawal of term deposit
2.12 Conversion of term deposit, deposit in the form of daily deposit or
recurring deposit for reinvestment in term deposit
2.13 Renewal of Overdue deposits
2.14 Advance against term deposit – Manner of charging interest
2.15 Margin on advance against term deposit
2.16 Restrictions on advances against NR(E)RA Deposits -Quantum of Loans
2.17 Interest payable on the deposit account of a deceased depositor
2.18 Notifying RBI regarding change in interest on deposits and also the
break-up of deposits according to different interest rate ranges
2.19 Addition or deletion of the name/s of joint account holders
2.20 Rounding off of transactions
2.21 Issue of term deposit receipt
2.22 Payment of interest on term deposit maturing on Sunday/
holiday/non-business working day
2.23.A.Deposit Mobilization Schemes
2.23.B. Special Term Deposit Products with Lock-in Period
2.24 Minimum balance in savings bank accounts
2.25 No-frills account
2.26 Exemptions
2.27 Prohibitions
- ANNEX
Annex 1 Rates of Interest on domestic deposits
Annex 2 Interest Rates on NRE deposits
Annex 3 Exemptions from prohibitions under para 2.26(n)(i)
Annex 4 List of circulars consolidated
- INTRODUCTION
1.1. Domestic Deposits
Prior to reforms, RBI prescribed the deposit rates and the maturities on
deposits that could be offered by banks. There was no price competition among
suppliers of banking services and the customer had only limited products to
choose from. As a result of deregulation, barring saving deposits, banks are
free to fix their own deposit rates for different maturities, which implies
choices for the depositor. Also, a customer can earn interest on a term deposit
for a minimum period of 7 days. Banks are now also free to offer varying rates
of interest for different sizes of deposits above a cut-off point, since the
cost of transaction differs by size. Earlier, RBI decided the penalty structure
for premature withdrawal of deposits, but this has now been left to each bank so
that banks can manage interest rates.
With effect from October 22, 1997, RBI has given the freedom to commercial banks
to fix their own interest rates on domestic term deposits of various maturities
with the prior approval of their respective Board of Directors/Asset Liability
Management Committee (ALCO). However, RBI regulates interest rates on savings
bank accounts. Interest rate is currently fixed at 4% per annum, with effect
from May 3, 2011.
A domestic rupee account may be opened as current, savings or term deposit.
1.2. Ordinary Non-Resident (NRO)
NRIs can open Non-Resident Ordinary (NRO) deposit accounts for collecting their
funds from local bona fide transactions. NRO accounts being Rupee accounts, the
exchange rate risk on such deposits is borne by the depositors themselves. When
a resident becomes an NRI, his existing Rupee accounts are designated as NRO.
Such accounts also serve the requirements of foreign nationals resident in
India. AD Category-I banks may permit foreign nationals who have come to India
on employment and are eligible to open/hold a resident savings bank account to
re-designate their resident account maintained in India as NRO account on
leaving the country after their employment to enable them to receive their
legitimate dues subject to certain conditions.
NRO accounts can be maintained as current, saving, recurring or term deposits.
While the principal of NRO deposits is non-repatriable, current income and
interest earning is repatriable. Further NRI/PIO may remit an amount, not
exceeding US $ 1 million per financial year, out of the balances held in NRO
accounts/ sale proceeds of assets /the assets in India acquired by him by way of
inheritance/legacy, on production of documentary evidence in support of
acquisition, inheritance or legacy of assets by the remitter, and an undertaking
by the remitter and certificate by a Chartered Accountant in the formats
prescribed by the Central Board of Direct Taxes vide their Circular No. 10/2002
dated October 9, 2002.
1.3. Non-Resident (External) (NRE) Accounts
The Non-Resident (External) Rupee Account NR(E)RA scheme, also known as the NRE
scheme, was introduced in 1970. Any NRI can open an NRE account with funds
remitted to India through a bank abroad. This is a repatriable account and
transfer from another NRE account or FCNR(B) account is also permitted. An NRE
rupee account may be opened as current, savings or term deposit. Local payments
can be freely made from NRE accounts. Since this account is maintained in
Rupees, the depositor is exposed to exchange risk. NRIs / PIOs have the option
to credit the current income to their Non-Resident (External) Rupee accounts,
provided the authorised dealer is satisfied that the credit represents current
income of the non-resident account holders and income-tax thereon has been
deducted / provided for.
1.4. Interest Rate Regulation
Prior to 1990s, in line with the regulation of domestic deposit rates, interest
rates on various NRI deposit schemes were regulated. As a first step towards
flexibility, the detailed maturity-wise prescriptions were rationalized in 1992
for NRE deposits, in line with the flexibility provided for domestic deposits.
With a view to aligning the maturity structure of NRE and domestic deposits,
interest rates on NRE term deposits of maturity over 2 years were freed
effective April 4, 1996 while those for maturity over 1 year were freed
effective April 16, 1997. Effective September 13, 1997, banks were given
complete freedom to decide interest rates across all maturities.
In response to changing conditions in the financial markets, interest rates on
NRE term deposits were linked to the international rates by way of a ceiling of
250 basis points over and above the US Dollar LIBOR/Swap rates of corresponding
maturities, effective July 17, 2003. The ceiling rates were progressively
reduced and brought down to LIBOR/SWAP rates for corresponding maturities with
effect from close of business as on April 24, 2007. The year 2008-09, however,
saw a progressive increase in the ceiling rates to 175 basis points over and
above LIBOR/Swap rates for corresponding maturities with effect from the close
of business as on November 15, 2008. Alongside, the NRE savings deposits rate
was delinked from the domestic savings deposits rate and the ceiling NRE savings
deposits rate was fixed at 6-month US Dollar LIBOR/Swap rate effective April 17,
2004. However, with effect from the close of business in India on November 17,
2005, the interest rates on NRE saving deposits are the same as applicable to
domestic savings deposits.
- GUIDELINES
Commercial banks should not pay interest on deposits of money accepted or
renewed by them in Domestic, Ordinary Non-Resident (NRO) and Non-Resident
(External) Accounts (NRE) except in accordance with the rates specified in the
Annex 1 and 2 hereto, as applicable, and on the terms and conditions specified
in the paragraphs below:
2.1 Definitions
For the purpose of this circular,
- “Demand liabilities” and “Time liabilities” mean the liabilities as shown in
the return submitted by the bank under sub-section (2) of Section 42 of the
Reserve Bank of India Act, 1934;
- “Demand deposit” means a deposit received by the bank, which is withdrawable
on demand;
- “Savings deposit” means a form of demand deposit which is a deposit account
whether designated as “Savings Account”, “Savings Bank Account”, “Savings
Deposit Account” or other account by whatever name called which is subject to
the restrictions as to the number of withdrawals as also the amounts of
withdrawals permitted by the bank during any specified period;
- “Term deposit” means a deposit received by the bank for a fixed period and
which is withdrawable only after the expiry of the said fixed period and shall
also include deposits such as Recurring/Cumulative/Annuity/Reinvestment
deposits, Cash Certificates, and so on;
- “Notice deposit” means term deposit for specific period but withdrawable on
giving at least one complete banking day’s notice;
- “Current Account” means a form of demand deposit wherefrom withdrawals are
allowed any number of times depending upon the balance in the account or up to a
particular agreed amount and shall also be deemed to include other deposit
accounts which are neither Savings Deposit nor Term Deposit;
- “Countervailing interest” means any benefit of interest allowed on any
account in the nature of current account maintained with the bank by its
borrower;
- “Budgetary allocation” means the allocation of funds by the Government made
through the budget, wherein all the Government’s expenditure is reflected. Any
institution, irrespective of the fact that it is a Government Department,
Semi-Government or Quasi-Government Body, which receives grants, loans or
subsidies from the Government is said to depend on budgetary allocation.
Government grants to institutions are also in the nature of the budgetary
allocation. Government’s subscription to the share capital of these institutions
also forms part of the budgetary allocation. Local bodies like Municipal
Corporations, Zilla Parishads, Taluka Panchayats and Gram Panchayats are given
grants in the nature of ‘compensation and assignments’, which also form part of
budgetary allocation, although taxes collected by these bodies are not covered
under the definition and scope of budgetary allocation of Central and State
Governments;
- “Public Sector Bank” means the State Bank of India constituted under the
State Bank of India Act, 1955 or any subsidiary bank as defined in clause (k) of
Section 2 of the State Bank of India (Subsidiary Banks) Act, 1959 or any
corresponding new bank as defined in clause (b) of Section 2 of the Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970 or Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1980.
Note: NRO/NRE deposits can be accepted only by banks, which are authorized by
Reserve Bank to accept such deposits.
2.2 Minimum tenor and rates of interest payable on Savings deposits and on Term
deposits
2.2.A. Minimum tenor
- Domestic/ NRO term deposits
The minimum tenor of domestic/ NRO term deposits is 7 days. Prior to November 1,
2004, banks were permitted to accept term deposits of Rs. 15 lakh and above for
a minimum maturity period of 7 days and, in case of term deposits of less than
Rs. 15 lakh, the minimum maturity period was 15 days. With effect from November
1, 2004, the minimum tenor of domestic/NRO term deposits below Rs. 15 lakh has
been reduced from 15 days to 7 days.
- NRE deposits
With effect from April 29, 2003, the minimum maturity period for NRE deposits
has been raised from 6 months to 1 year, making the range of the maturity period
for fresh NRE term deposits from one to three years, in line with FCNR(B)
deposits. However, banks are allowed to accept NRE deposits above three years
from their Asset-Liability point of view, provided the rate of interest on such
long term deposits is not higher than that applicable to 3 year deposits.
2.2.B. Payment of interest
- Banks should pay interest on savings deposits and term deposits, including
NRE deposits, at the rates specified in Annex 1 and Annex 2 to this circular. A
bank must obtain prior approval of its Board/Asset Liability Management
Committee (if powers are delegated by the Board) for fixing interest rates of
various maturities.
- Such interest should be paid at quarterly or longer rests. Interest on
savings bank accounts should be credited on regular basis whether the account is
operative or not.
- In view of the present satisfactory level of computerization in commercial
bank branches, the payment of interest on savings bank accounts by scheduled
commercial banks should be calculated on a daily product basis with effect from
April 1, 2010.
2.2.C. Floating Rate Deposits
On Domestic Term Deposits, a bank may offer floating rate clearly linked to an
anchor rate. In order to ensure transparency, banks should not use internal or
derived rates while offering floating rate deposit products. Only market-based
rupee benchmark rates, which are directly observable and transparent to the
customer, should be used by banks for pricing their floating rate deposits.
2.2.D Payment of interest on accounts frozen by banks
Banks are advised to follow the procedure detailed below in the case of Term
Deposit Accounts of customers frozen by the orders of the enforcement
authorities:
- A request letter may be obtained from the customer on maturity. While
obtaining the request letter from the depositor for renewal, banks should also
advise him to indicate the term for which the deposit is to be renewed. In case
the depositor does not exercise his option of choosing the term for renewal,
banks may renew the same for a term equal to the original term.
- No new receipt is required to be issued. However, suitable note should be
made regarding renewal in the deposit ledger.
- Renewal of deposit should be advised by registered letter / speed post /
courier service to the concerned Government department under advice to the
depositor. In the advice to the depositor, the rate of interest at which the
deposit is renewed should also be mentioned.
- If overdue period does not exceed 14 days on the date of receipt of the
request letter, renewal should be done from the date of maturity. If it exceeds
14 days, banks should pay interest for the overdue period as per the policy
adopted by them, and keep it in a separate interest free sub-account which
should be released when the original fixed deposit is released.
Further, with regard to the savings bank accounts frozen by the enforcement
authorities, banks should continue to credit the interest to the account on a
regular basis.
2.3. Payment of interest on fixed deposit - Method of calculation of interest
The Indian Banks’ Association (IBA) Code for Banking Practice has been issued by
IBA for uniform adoption by the Member Banks. The Code is intended to promote
good banking practices by setting out minimum standards, which Member Banks
should follow in their dealings with customers. IBA, for the purpose of
calculation of interest on domestic term deposit, has prescribed that on
deposits repayable in less than three months or where the terminal quarter is
incomplete, interest should be paid proportionately for the actual number of
days reckoning the year at 365 days. Some banks are adopting the method of
reckoning the year at 366 days in a Leap year and 365 days in other years. While
banks are free to adopt their methodology, they should provide information to
their depositors about the manner of calculation of interest appropriately while
accepting the deposits and display the same at their branches.
If a Fixed Deposit Receipt matures and proceeds are unpaid, the amount left
unclaimed with the bank will attract savings bank rate of interest.
2.4 Additional interest to Army Group Insurance Directorate (AGID), Naval Group
Insurance Fund (NGIF) and Air-Force Group Insurance Society (AFGIS)
A Public Sector Bank is permitted to pay additional interest of 1.28 per cent
per annum over and above the normal rate of interest permissible in terms of
directives on interest rates on deposits issued by Reserve Bank of India, from
time to time, on term deposits for 2 years and above of Army Group Insurance
Directorate (AGID), Naval Group Insurance Fund (NGIF) and Air-Force Group
Insurance Society (AFGIS) only, provided such deposits are not in any way linked
with payment of insurance premia by the bank.
2.5. Discretion to Regional Rural Banks /Local Area Banks to pay additional
interest
Regional Rural Banks/Local Area Banks may, at their discretion, allow additional
interest of half percent per annum on savings deposits. These banks are,
however, encouraged not to pay any additional interest on saving bank accounts
over and above what is payable by commercial banks.
2.6 Discretion to pay additional interest not exceeding one percent on deposits
of bank’s staff and their exclusive associations
A bank may, at its discretion, allow additional interest at a rate not exceeding
one per cent per annum over and above the rate of interest stipulated in Annex 1
& 2 to this circular subject to following conditions:
2.6.1. In respect of a savings or a term deposit account opened in the name of:
- a member or a retired member of the bank;s staff, either singly or jointly with
any member or members of his/her family; or
- the spouse of a deceased member or a deceased retired member of the bank’s
staff; and
- an Association or a fund, members of which are members of the bank’s staff;
A bank should obtain a declaration from the depositor concerned, that the monies
deposited or which may, from time to time, be deposited into such account belong
to the depositor as stated in clauses (a) to (c) above.
2.6.2. For the purposes of sub-paragraph 2.6.1. -
- “a member of the bank’s staff” means a person employed on a regular basis,
whether full-time or part-time, and includes a person recruited on probation or
employed on a contract of a specified duration or on deputation and an employee
taken over in pursuance of any scheme of amalgamation, but does not include a
person employed on casual basis.
- In the case of employees taken on deputation from another bank, the bank from
which they are deputed may allow additional interest in respect of the savings
or term deposit account opened with it during the same period of deputation;
- In the case of persons taken on deputation for a fixed duration, or on a
contract of a fixed duration, the benefit will cease to accrue on the expiry of
the term of deputation or contract, as the case may be.
- “A retired member of the bank’s staff” means an employee retiring whether
on superannuation or otherwise as provided in the bank’s Service/Staff
Regulations, but does not include an employee retired compulsorily or in
consequence of disciplinary action;
- “Family” means and includes the spouse of the member/retired member of the
bank’s staff and the children, parents, brothers and sisters of the
member/retired member of the bank’s staff, who are dependent on such
member/retired member, but does not include legally separated spouse;
2.6.3. Payment of additional interest is subject to the following conditions,
namely:
- The additional interest is payable only so long as the person continues to be
eligible for the same and in case of his ceasing to be so eligible, till the
maturity of a term deposit account;
- In the case of employees taken over pursuant to the scheme of amalgamation, the
additional interest is allowed only if the interest at the contractual rate
together with the additional interest does not exceed the rate, which could have
been allowed if such employees were originally employed by the bank.
2.6.4. Bank Employees’ Federations in which bank employees are not direct
members are not eligible for additional interest.
2.6.5. In case of Domestic deposits, it will be in order for banks to give their
retired staff, who are senior citizens, the benefit of higher interest rates as
admissible to senior citizens over and above the additional interest of not
exceeding one per cent payable to them by virtue of their being retired members
of the banks' staff.
2.6.6. In the case of Non-Resident (External) deposits of staff members,
existing or retired, interest rate including any additional interest paid to
them by virtue of their being staff members, should not exceed the ceiling
stipulated by RBI.
2.7. Discretion to pay additional interest not exceeding one per cent on
deposits of Chairman and Managing Director and Executive Directors of the bank
A bank may, at its discretion, pay additional interest not exceeding one per
cent per annum over and above the rate of interest stipulated in Annex 1& 2 to
this circular on deposits accepted/renewed from Chairman, Chairman & Managing
Director, Executive Director or such other Executive appointed for a fixed
tenure. However, they are eligible to get the benefit under paragraph 2.6 above
only during the period of their tenure.
2.8. Discretion to pay interest on current accounts maintained by Regional Rural
Banks with sponsor banks
Banks may pay interest on current account of a Regional Rural Bank sponsored by
them. However, banks are encouraged not to pay interest on the current accounts
maintained by RRBs with them.
2.9. Discretion to pay interest on the minimum credit balance in the composite
cash credit account of a farmer
A bank may, at its discretion, pay interest at a rate based on its perception
and other relevant factors on the minimum credit balance in the composite cash
credit account of a farmer during the period from the 10th to the last day of
each calendar month.
2.10. Deposit Scheme for Senior Citizens
- Banks have been permitted to formulate, with the approval of their Boards of
Directors, fixed deposit schemes specifically for resident Indian senior
citizens offering higher and fixed rates of interest as compared to normal
deposits of any size. These schemes should also incorporate simplified
procedures for automatic transfer of deposits to nominee of such depositors in
the event of death. The above additional interest is not applicable to any type
of non-resident deposits.
- In the case of a term deposit which is standing in the name of an HUF, the Karta of the HUF cannot be offered higher rate of interest, even if he is senior
citizen, as the beneficial owner of the deposit is the HUF and not the Karta in
his individual capacity.
2.11. Premature withdrawal of term deposit
- A bank, on request from the depositor, should allow withdrawal of a term
deposit before completion of the period of the deposit agreed upon at the time
of making the deposit. The bank will have the freedom to determine its own penal
interest rate of premature withdrawal of term deposits. The bank should ensure
that the depositors are made aware of the applicable penal rate along with the
deposit rate. While prematurely closing a deposit, interest on the deposit for
the period that it has remained with the bank will be paid at the rate
applicable to the period for which the deposit remained with the bank and not at
the contracted rate. No interest is payable, where premature withdrawal of
deposits takes place before completion of the minimum period prescribed.
However, the bank, at its discretion, may disallow premature withdrawal of large
deposits held by entities other than individuals and Hindu Undivided Families.
The bank should, however, notify such depositors of its policy of disallowing
premature withdrawal in advance, i.e., at the time of accepting such deposits.
- In the case of premature withdrawal of NRE term deposits for conversion
into Resident Foreign Currency (RFC) Account, the bank should not levy any
penalty for premature withdrawal. If such a deposit has not run for a minimum
period of 1 year, the bank may, at its discretion, pay interest at a rate not
exceeding the rate payable on savings deposits held in RFC accounts, provided
the request for such a conversion is made by the NRE account holder immediately
on return to India.
- Conversion of NRE deposit into FCNR(B) deposit and vice versa before
maturity should be subject to the penal provision relating to premature
withdrawal.
- Conversion of NRSR/NRNR deposit into NRO deposit before maturity will be
subject to the penal provision relating to premature withdrawal.
- In view of the discontinuance of NRNR/NRSR schemes with effect from April 1,
2002, the proceeds of NRNR deposits can be credited to NRE accounts on maturity
but not to FCNR(B) accounts, while proceeds of NRSR accounts can be credited on
maturity to NRO accounts only. In case of premature withdrawal of NRNR/NRSR
deposits, the proceeds should be credited to NRO accounts only.
2.12. Conversion of a term deposit, a deposit in the form of daily deposit or a
recurring deposit for reinvestment in term deposit
A bank, on a request from the depositor, should allow conversion of a term
deposit, a deposit in the form of daily deposit or recurring deposit, to enable
the depositor to immediately reinvest the amount lying in the aforesaid deposits
with the same bank in another term deposit. The bank should pay interest in
respect of such a term deposit in the manner indicated in paragraph 2.11 above.
On review and in order to facilitate better asset-liability management (ALM),
banks are permitted to formulate their own policies towards conversion of
deposits.
2.13. Renewal of Overdue deposits
All aspects concerning renewal of overdue deposits may be decided by individual
banks subject to their Board laying down a transparent policy in this regard and
the customers being notified of the terms and conditions of renewal including
interest rates, at the time of acceptance of deposit. The policy should be
non-discretionary and non-discriminatory.
2.14. Advance against term deposit - Manner of charging interest
- When an advance is granted against a term deposit and the deposit stands in
the name of -
- the borrower, either singly or jointly;
- one of the partners of a partnership firm and the advance is made to the
said firm;
- the proprietor of a proprietary concern and the advance is made to such a
concern;
- a ward whose guardian is competent to borrow on behalf of the ward and
where the advance is made to the guardian of the ward in such a capacity;
the bank would be free to charge interest rate without reference to its Base
Rate including advances granted against NRE term deposits and repaid in Foreign
Currency or Rupees.
If the term deposit against which an advance was granted is withdrawn before
completion of the prescribed minimum maturity period, such an advance should not
be treated as advance against the term deposit and interest should be charged as
prescribed in terms of the Reserve Bank of India’s directive on Interest Rates
on Advances issued from time to time.
- The account holder of NRE savings deposits can withdraw the savings deposits
at any time and therefore, banks should not mark any type of lien, direct or
indirect, against these deposits. (As regards domestic saving deposits, banks
may follow the guidelines issued by IBA / existing practices approved by their
Board in this regard.)
2.15. Margin on advance against term deposit
The decision in regard to margin against term deposit has been left to the
discretion of individual banks subject to their Board laying down a transparent
policy in this regard.
2.16. Restrictions on advances against NR(E)RA Deposits - Quantum of loans
The Third Quarter Review of Annual Statement on Monetary Policy for the Year
2006-07 (para 86), had observed that keeping in view the objective of making
these facilities available to individual Non-Resident Indians (NRIs) and
considering the prevailing monetary conditions, there is merit in avoiding
upward pressure on asset prices in sensitive sectors through utilisation of this
facility. Therefore, banks were prohibited from granting fresh loans or renewing
existing loans in excess of Rupees twenty (20) lakh against NR(E)RA and FCNR(B)
deposits either to the depositors or third parties. As announced in the Annual
Policy Statement 2009-10 ( para 111), it has been decided to enhance the
existing cap of Rs. 20 lakh to Rs. 100 lakh on loans against security of funds
held in NR(E)RA and FCNR(B) deposits either to the depositors or third parties.
Accordingly, banks should not grant fresh loans or renew existing loans in
excess of Rupees hundred (100) lakh against NR(E)RA deposits, either to
depositors or to third parties, with effect from April 28, 2009. Banks should
not undertake artificial slicing of the loan amount to circumvent the ceiling.
2.17. Interest payable on the deposit account of deceased depositor
- In the case of a term deposit standing in the name/s of
- a deceased individual depositor, or
- two or more joint depositors, where one of the depositor has died, the
criterion for payment of interest on matured deposits in the event of death of
the depositor in the above cases has been left to the discretion of individual
banks subject to their Board laying down a transparent policy in this regard.
- In the case of balances lying in current account standing in the name of a
deceased individual depositor/sole proprietorship concern, interest should be
paid only from 1st May, 1983, or from the date of death of the depositor,
whichever is later, till the date of repayment to the claimant/s at the rate of
interest applicable to savings deposit as on the date of payment.
Note: In the case of an NRE deposit, when the claimants are residents, the
deposit on maturity should be treated as a domestic rupee deposit and interest
should be paid for the subsequent period at a rate applicable to a domestic
deposit of similar maturity.
2.18. Notifying RBI regarding change in interest on deposits and also the
break-up of deposits according to different interest rate ranges
As per the instructions issued in September, 1997, as and when the deposit rate
structure and PLR are revised, banks were required to furnish the same to RBI,
Department of Banking Operations and Development (DBOD) in the prescribed
proforma (Return No. 7 of Manual of Instructions). Since banks submit similar
information to RBI’s Monetary Policy Department, submission of the return to
DBOD has been discontinued.
2.19. Addition or deletion of the name/s of joint account holders
A bank may, at the request of all the joint account holders, allow the addition
or deletion of name/s of joint account holder/s if the circumstances so warrant
or allow an individual depositor to add the name of another person as a joint
account holder. However, in no case should the amount or duration of the
original deposit undergo a change in any manner in case the deposit is a term
deposit.
A bank may, at its discretion, and at the request of all the joint account
holders of a deposit receipt, allow the splitting up of the joint deposit, in
the name of each of the joint account holders only, provided that the period and
the aggregate amount of the deposit do not undergo any change.
Note: NRE deposits should be held jointly with non-residents only. NRO accounts
may be held by non-residents jointly with residents.
2.20. Rounding off of transactions
All transactions, including payment of interest on deposits/charging of interest
on advances, should be rounded off to the nearest rupee; i.e., fractions of 50
paise and above shall be rounded off to the next higher rupee and fraction of
less than 50 paise shall be ignored. Issue prices of cash certificates should
also be rounded off in the same manner.
In the light of a judgement of the High Court of Gujarat, Ahmedabad, banks were
advised that they should ensure that cheques/ drafts issued by clients
containing fractions of a rupee are not rejected or dishonoured by them. Banks
should also review the practice being followed by them in this regard and take
necessary steps including through issue of internal circulars, etc, to ensure
that the concerned staff are well versed with these instructions so that the
general public does not suffer. Further, banks should ensure that appropriate
action is taken against members of their staff who are found to have refused to
accept cheques/ drafts containing fractions of a rupee. Any bank violating the
aforesaid instructions would be liable to be penalised under the provisions of
the Banking Regulation Act, 1949.
2.21. Issue of term deposit receipt
A bank should issue term deposit receipt indicating therein full details, such
as, date of issue, period of deposit, due date, applicable rate of interest,
etc.
2.22. Payment of interest on term deposit maturing on
Sunday/holiday/non-business working day
In case of reinvestment deposits and recurring deposits, banks should pay
interest for the intervening Sunday/holiday/non-business working day (as also
Saturday in case of NRE deposits) on the maturity value. However, in the case of
ordinary term deposits, the interest for the intervening
Sunday/holiday/non-business working day (as also Saturday in case of NRE
deposits) should be paid on the original principal amount.
2.23.A. Deposit Mobilisation Schemes
Banks need not obtain prior concurrence of the Indian Banks’ Association or
prior approval of the RBI for introduction of their new domestic deposit
mobilisation schemes. However, before launching new domestic deposit
mobilisation schemes with the approval of their respective Boards, banks should
ensure that the provisions of RBI directives on interest rates on deposits,
premature withdrawal of term deposits, sanction of loans/advances against term
deposits, etc., issued from time to time, are strictly adhered to. Any violation
in this regard will be viewed seriously and may attract penalty under the
Banking Regulation Act, 1949.
2.23.B Special Term Deposit Products with Lock-in Period
Some banks were offering special term deposit products to customers, in addition
to regular term deposits, ranging from 300 days to five years, with the
following features:
- Lock-in periods ranging from 6 to 12 months;
- During the lock-in period, premature withdrawal is not permitted. In case of
premature withdrawal during the lock-in period, no interest is paid;
- Rates of interest offered on these deposits are not in tune with the rates of
interest on normal deposits;
- Part pre-payment is allowed by some banks, subject to certain conditions.
As the special schemes, with lock-in periods and other features referred to
above, which have been floated by some banks, were not in conformity with our
instructions, banks that have floated such deposit schemes were, advised to
discontinue the schemes.
2.24. Minimum balance in savings bank accounts
At the time of opening the accounts, banks should inform their customers in a
transparent manner the requirement of maintaining minimum balance and levying of
charges etc., if the minimum balance is not maintained. Any charge levied
subsequently should be transparently made known to all depositors in advance
with one month's notice. The banks should inform, at least one month in advance,
the existing account holders any change in the prescribed minimum balance and
the charges that may be levied if the prescribed minimum balance is not
maintained.
2.25. 'No-frills' account
With a view to achieving the objective of greater financial inclusion, all banks
should make available a basic banking 'no-frills' account either with 'nil' or
very low minimum balances as well as charges that would make such accounts
accessible to vast sections of population. The nature and number of transactions
in such accounts could be restricted, but made known to the customer in advance
in a transparent manner. All banks should give wide publicity to the facility of
such 'no-frills' account including in the local media indicating the facilities
and charges in a transparent manner.
The efforts of banks have enabled the common person to open bank accounts.
However, financial inclusion objectives would not be fully met if the banks do
not increase the banking outreach to the remote corners of the country. This has
to be done with affordable infrastructure and low operational costs with the use
of appropriate technology. This would enable banks to lower the transaction
costs to make small ticket transactions viable. A few banks have already
initiated certain pilot projects in different remote parts of the country
utilizing smart cards / mobile technology to extend banking services similar to
those dispensed from branches. Banks are, therefore, urged to scale up their
financial inclusion efforts by utilizing appropriate technology. Care may be
taken to ensure that the solutions developed are (i) highly secure, (ii)
amenable to audit and (iii) follow widely accepted open standards to allow
inter-operability among the different systems adopted by different banks.
2.26. Exemptions
The provisions in the above paragraphs will not apply to:
- a deposit received by the bank:
- from the institutions permitted to participate in the Call/Notice/Term Money
Market both as lenders and borrowers, namely, all Scheduled Commercial Banks
(excluding RRBs), Co-operative Banks and Primary Dealers;
- for which it has issued a participation certificate;
- under Foreign Currency (Non-Resident) Accounts (Banks) Scheme, Resident Foreign
Currency Account and Exchange Earners Foreign Currency Accounts;
- under the Capital Gains Accounts Scheme, 1988, framed by the Government of India
in pursuance of sub-section (2) of Section 54, sub-section (2) of Section 54B,
sub-section (2) of Section 54D, sub-section (4) of Section 54F and sub-section
(2) of Section 54G of the Income-Tax Act, 1961; and
- under the Certificate of Deposit Scheme.
- payment of interest on delayed collection of outstation instruments like cheques, drafts, bills, telegraphic/mail transfers, etc.
2.27. Prohibitions
No bank should -
- pay interest on Current Account save as provided in paragraphs 2.8 and
2.17(b) above;
- pay countervailing interest on any current accounts maintained with it by
its borrowers;
- discriminate in the matter of interest paid on deposits, between one deposit
and another, accepted on the same date and for the same maturity, whether such
deposits are accepted at the same office or at different offices of the bank,
except in respect of fixed deposit schemes specifically for resident Indian
senior citizens offering higher and fixed rates of interest as compared to
normal deposits of any size, and single term deposits of Rs.15 lakh and above on
which varying rates of interest may be permitted on the basis of size of
deposits. The permission to offer varying rates of interest is subject to the
following conditions:
- The permission to offer varying rates of interest for deposits of the same
maturity applies to single term deposits of Rs.15 lakh and above. Banks should,
therefore, offer the same rate of interest or different rates of interest for
deposits of Rs.15 lakh and above. For deposits below Rs.15 lakh of the same
maturity the same rate will apply. In this regard, it is clarified that it will
not be in order for banks to offer higher/differential rate of interest, as
compared to other deposits of similar tenure, on deposit schemes framed by them
on the basis of the Bank Term Deposit Scheme, 2006, announced by Government of
India vide their notification No. 203/2006 dated July 28, 2006. It will also not
be in order for banks to offer higher/ differential rate of interest on deposits
received under the Capital Gains Accounts Scheme, 1988.
- Banks should disclose in advance the schedule of interest rates payable on
deposits including deposits on which differential interest will be paid.
Interest rates paid by the bank should be as per the schedule and should not be
subject to negotiation between the depositor and the bank.
- pay brokerage in the form of commission or gift or incentives on deposits in
any manner or in any other form to any individual, firm, company, association,
institution or any other person except -
- commission paid to agents employed to collect door-to-door deposits under a
special scheme. Banks have also been permitted to use the services of
Non-Governmental Organisations(NGOs)/ Self Help Groups(SHGs)/ Micro Finance
Institutions(MFIs) and other Civil Society Organisations(CSOs) as intermediaries
in providing financial and banking services including collection of deposits
through the use of the Business Facilitator and Business Correspondent models.
Banks may pay reasonable commission/ fee to the Business facilitators/
Correspondents, the rate and quantum of which may be reviewed periodically. The
agreement with the Business facilitators/ Correspondents should specifically
prohibit them from charging any fee to the customers directly for services
rendered by them on behalf of the bank.
- inexpensive gifts costing not more than Rs.250/-; and
- incentives granted to staff members as approved by the Reserve Bank of
India from time to time.
- employ/ engage any individual, firm, company, association, institution or
any other person for collection of deposit or for selling any other deposit
linked products on payment of remuneration or fees or commission in any form or
manner, except to the extent permitted in sub-clause (i) of clause (d) above.
- launch prize/lottery/free trips (in India and/or abroad), etc. oriented
deposit mobilisation schemes. It is clarified that banks should not offer any
banking products, including online remittance schemes, with prizes /lottery/free
trips (in India and/or abroad), etc. or any other incentives having an element
of chance, except inexpensive gifts costing not more than Rs. 250/-, as such
products involve non-transparency in the pricing mechanism and therefore go
against the spirit of the guidelines. Such products, if offered, by banks would
be considered as violation of the extant guidelines and the banks concerned
would be liable for penal action.
- resort to unethical practices of raising of resources through agents/third
parties to meet the credit needs of the existing/prospective borrowers or to
grant loans to the intermediaries based on the consideration of deposit mobilisation.
- issue any advertisement/literature soliciting deposits from public
highlighting only the compounded yield on term deposits without indicating the
actual rate of simple interest offered by the bank for the particular period.
Simple rate of interest per annum for the period of deposit should be indicated
invariably.
- pay interest on margin money held in current account.
- pay interest on “deposit at call” receipts issued by it to the tenderers
(contractors) for submission to Government Departments/Semi-Quasi Government
bodies, local bodies, etc. against the money held in current account.
- accept interest-free deposit other than in current account or pay
compensation indirectly.
- accept deposits from/at the instance of private financiers or unincorporated
bodies under any arrangement which provides for either issue of deposit
receipt/s favouring client/s of private financiers or giving of an authority by
power of attorney, nomination or other-wise, for such clients receiving such
deposits on maturity.
- grant advances against fixed deposit receipts or other term deposits of
other banks.
- (i) open a savings deposit account in the name of Government
departments/bodies depending upon budgetary allocations for performance of their
functions/Municipal Corporations or Municipal Committees/ Panchayat Samitis/State
Housing Boards/Water and Sewerage/Drainage Boards/State Text Book Publishing
Corporations/ Societies/Metropolitan Development Authority / State/ District
Level Housing Co-operative Societies, etc. or any political party or any
trading/business or professional concern, whether such concern is a proprietary
or a partnership firm or a company or an association.
Explanation
For the purposes of this clause, ‘political party’ means an association or body
of individual citizens of India, which is, or is deemed to be registered with
the Election Commission of India as a political party under the Election Symbols
(Reservation and Allotment) Order, 1968 as in force for the time being.
- The above prohibition will not apply in the case of organizations/agencies
listed in Annex 3.
ANNEX 1
Rates of Interest on Deposits held in
Domestic/Ordinary Non-Resident (NRO) Accounts
[paragraph 2.2B(i)]
| Category of Account
|
[Percent per annum] |
| (i) |
Current |
Nil |
| (ii) |
Savings* |
4.0 (with effect from May 3, 2011) |
| (iii) |
Term Deposits (minimum period 7 days) |
Free |
* With effect from the close of business in India on November 17, 2005, the rate
of interest on domestic savings account will also be applicable to NRE savings
account.
* For operational convenience, the interest rates on domestic / NRO accounts
should be rounded off to the nearest two decimal points.
ANNEX 2
Interest rates applicable to deposits held in
Non-Resident (External) Accounts
[paragraph 2.2B(i)]
| (i) |
Current |
Nil |
| (ii) |
Savings Account |
With effect from the close of business in India on November 17, 2005, the
interest rates on NRE savings deposits should be the same as applicable to
domestic savings deposits instead of the LIBOR/SWAP rate for six months maturity
on US dollar deposits. |
| (iii) |
Term Deposits |
(a) |
With effect from the close of business in India on November 15, 2008,
interest rates on NRE deposits for one to three years should not exceed the
LIBOR/SWAP rates plus 175 basis points, as on the last working day of the
previous month, for US dollar of corresponding maturities (as against LIBOR /
SWAP rates plus 100 basis points effective from close of business on October 15,
2008). |
| |
|
(b) |
The LIBOR/SWAP rates as on the last working day of the preceding month would
form the base for fixing ceiling rates for the interest rates that would be
offered effective from the following month. |
| |
|
(c) |
The above changes in interest rates will also apply to repatriable NRE
deposits renewed after their present maturity period. |
| |
|
(d) |
With effect from 29.04.2003, the maturity period of fresh NRE deposits
should normally be one year to three years. This will also apply to NRE deposits
renewed after their present maturity period. In case, a particular bank, from
its Asset Liability Management point of view, wishes to accept deposits with
maturity of more than 3 years, it may do so provided the interest rate on such
long term deposits is not higher than that applicable to 3 years NRE deposits. |
| |
|
(e) |
For the purposes of operational convenience, the interest rates should be
rounded off to the nearest two decimal points. For example, a computed interest
rate of 3.676 per cent would become 3.68 per cent, and 3.644 per cent would
become 3.64 per cent. |
| |
|
(f) |
FEDAI quotes/displays the LIBOR/SWAP rates on the last working day of each
month using a web page that can be accessed by all the subscribers to the
Reuters Screen. The rates should be taken as the base rates for fixing ceiling
on the interest rates that can be offered effective from the following month. |
ANNEX 3
List of organisations/bodies to which the prohibition contained in
Clause 2.27(n)(i) of the directive will not be applicable
| (1) |
Primary Co-operative Credit Society which is being financed by the bank. |
| (2) |
Khadi and Village Industries Boards. |
| (3) |
Agriculture Produce Market Committees. |
| (4) |
Societies registered under the Societies Registration Act, 1860 or any other
corresponding law in force in a State or a Union Territory except societies
registered under the State Co-operative Societies Acts and specific state
enactment creating Land Mortgage Banks. . |
| (5) |
Companies governed by the Companies Act, 1956 which have been licensed by the
Central Government under Section 25 of the said Act, or under the corresponding
provision in the Indian Companies Act, 1913 and permitted, not to add to their
names the words ‘Limited’ or the words ‘Private Limited’. |
| (6) |
Institutions other than those mentioned in clause 2.27(n)(i) and whose entire
income is exempt from payment of Income-tax under the Income-Tax Act, 1961. |
| (7) |
Government departments / bodies / agencies in respect of grants/ subsidies
released for implementation of various programmes / Schemes sponsored by Central
Government / State Governments subject to production of an authorization from
the respective Central / State Government departments to open savings bank
account. |
| (8) |
Development of Women and Children in Rural Areas (DWCRA). |
| (9) |
Self-help Groups (SHGs), registered or unregistered, which are engaged in
promoting savings habits among their members. |
| (10) |
Farmers’ Clubs – Vikas Volunteer Vahini – VVV. |
ANNEX 4
List of circulars consolidated in the Master Circular on
Interest Rates on Rupee Deposits held in Domestic/NRO/NRE Accounts
| 1 |
DBOD.No.Dir.BC.46& 47/13.03.00/2000-2001
|
4.11.2000* |
| 2 |
DBOD.No.FSC.BC.61/24.91.001/2000 |
29.12.2000 |
| 3 |
DBOD.No.Dir.BC.62 & 64/13.03.00/2000-01
|
03.01.2001 |
| 4 |
DBOD.No.FSC.BC.69/24.103.001/2000 |
15.01.2001 |
| 5 |
DBOD. No.FSC.BC.80/24.103.001/2000 |
20.02.2001 |
| 6 |
DBOD. No.FSC.BC.85/24.103.001/2001 |
01.03.2001 |
| 7 |
DBOD.No.Dir. BC.104 & 107/13.03.00/2000-01
|
19.04.2001 |
| 8 |
DBOD. No.FSC.BC.125/24.92.001/2000-01
|
25.05.2001 |
| 9 |
DBOD. No.FSC.BC.01/24.91.001/2001-02 |
05.07.2001 |
| 10 |
DBOD.No.Dir.BC.07/13.03.00/2001-02 |
11.08.2001 |
| 11 |
DBOD.No.FSC.BC.30/24.91.001/2001-02 |
28.09.2001 |
| 12 |
DBOD.No.FSC.BC.31/24.92.001/2001-02 |
28.09.2001 |
| 13 |
DBOD.No.FSC.BC.41/24.91.001/2001-02 |
01.11.2001 |
| 14 |
DBOD.No.FSC.BC.49/24.92.001/2001-02 |
24.11.2001 |
| 15 |
DBOD.No.FSC.BC.51/24.92.001/2001-02 |
04.12.2001 |
| 16 |
DBOD.No.FSC.BC.85/24.92.001/2001-02 |
03.04.2002 |
| 17 |
DBOD.No.Dir.BC.93/13.01.09/2001-02 |
29.04.2002 |
| 18 |
DBOD.No.Dir.BC.38/13.03.00/2002-03 |
05.11.2002 |
| 19 |
DBOD.No.FSC.BC.45/24.92.001/2002-03 |
03.12.2002 |
| 20 |
DBOD.No.Dir.BC.50/13.03.00/2002-03 |
14.12.2002 |
| 21 |
DBOD.No.Dir.BC.51/13.03.00/2002-03 |
14.12.2002 |
| 22 |
DBOD.No.Dir.BC.53/13.10.00/2002-03 |
26.12.2002 |
| 23 |
DBOD.No.Dir.BC.75/13.03.00/2002-03 |
28.02.2003 |
| 24 |
DBOD.No.Dir.BC.76/13.03.00/2002-03 |
28.02.2003 |
| 25 |
DBOD.No.FSC.BC.85/24.91.001/2002-03 |
26.03.2003 |
| 26 |
DBOD.No.FSC.BC.86/24.92.001/2002-03 |
26.03.2003 |
| 27 |
DBOD.No.Dir.BC.101/13.01.09/2002-03 |
29.04.2003 |
| 28 |
DBOD.No.Dir.BC.102/13.01.09/2002-03 |
29.04.2003 |
| 29 |
DBOD.No.Dir.BC.1/13.01.09/2003-04 |
17.07.2003 |
| 30 |
DBOD.No.Dir.BC.2/13.01.09/2003-04 |
17.07.2003 |
| 31 |
MPD.BC.237/07.01.279/2003-04 |
17.07.2003 |
| 32 |
DBOD No.Dir.BC.25/13.01.09/2003-04 |
15.09.2003 |
| 33 |
DBOD No.Dir.BC.26/13.01.09/2003-04 |
15.09.2003 |
| 34 |
DBOD No.Dir.BC.35/13.01.09/2003-04 |
18.10.2003 |
| 35 |
DBOD No.Dir.BC.36/13.01.09/2003-04 |
18.10.2003 |
| 36 |
DBOD No.Dir.BC.68/13.03.00/2003-04 |
13.02.2004 |
| 37 |
DBOD No.Dir.BC. 69/13.03.00/2003-04 |
13.02.2004 |
| 38 |
DBOD No Dir.BC.75/13.01.09/2003-04 |
17.04.2004 |
| 39 |
DBOD No.Dir.BC.76/13.01.09/2003-04 |
17.04.2004 |
| 40 |
DBOD No.Dir.BC.78/13.03.00/2003-04 |
22.04.2004 |
| 41 |
DBOD No. Dir. 53/13.03.00/2004-05 |
01.11.2004 |
| 42 |
DBOD No. Dir. 54 /13.03.00/2004-05 |
01.11.2004 |
| 43 |
DBOD. No. Leg .BC.44/09.07.05/ 2005-06
|
11.11.2005 |
| 44 |
DBOD No. Dir. 48 /13.03.00/2005-06 |
17.11.2005 |
| 45 |
DBOD.No.BL.BC.58/22.01.001/2005-06 |
25.01.2006 |
| 46 |
DBOD No. Dir. 62/13.03.00/2005-06 |
08.02.2006 |
| 47 |
DBOD No. Dir. 80/13.03.00/2005-06 |
18.04.2006 |
| 48 |
A.P.(DIR Series) Circular No.29 |
31.01.2007 |
| 49 |
DBOD.No.Dir.BC.54/13.03.00/2006-07 |
31.01.2007 |
| 50 |
DBOD.No.Dir.BC.55/13.03.00/2006-07 |
31.01.2007 |
| 51 |
DBOD.No.Dir.BC.70/13. 01.01/2006-07 |
30.03.2007 |
| 52 |
DBOD.No.Dir.BC.88/13.03.00/2006-07 |
24.04.2007 |
| 53 |
DBOD.No.Dir.BC.89/13.03.00/2006-07 |
24.04.2007 |
| 54 |
DBOD.No.Leg.BC.94/09.07.005/2006-07 |
07.05.2007 |
| 55 |
DBOD No. Dir. BC. 39/13.03.00/2007-08
|
25.10.2007 |
| 56 |
DBOD.No.Leg.BC.34/09.07.005/2008-09 |
22.08.2008 |
| 57 |
DBOD.No.Leg.BC.47/09.07.005/2008-09 |
19.09.2008 |
| 58 |
DBOD.No.Dir.BC.82/13.03.00/2008-09 |
15.11.2008 |
| 59 |
DBOD.No.Dir.BC.128/13.03.00/2008-09 |
24.04.2009 |
| 60 |
A.P. (DIR Series) Circular No.66 |
28.04.2009 |
| 61 |
DBOD.No.Dir.BC.77/13.03.00/2009-10 |
19.2.2010 |
| 62 |
DBOD.No.Dir.BC.91/13.03.00/2009-10 |
20.04.2010 |
| 63 |
DBOD.Dir.BC.89 & 90/13.03.00/2010-11
|
03.05.2011 |
| 64 |
A.P.(Dir Series) Circular No.70 |
09.06.2011 |
*The circular dated November 4, 2000 replaces the basic directive dated December
27, 1985 and incorporates all amendments made/instructions issued upto that
date.