FAQ

1. Whether banks can accept interest free deposits?

Banks cannot accept interest free deposits other than in current account.

2. What rate of Interest is paid by banks on savings bank accounts?

With effect from October 25, 2011, saving bank deposit interest rate stands deregulated. Accordingly, banks are free to determine their savings bank deposit interest rate, subject to the following two conditions:

  • (a) First, each bank will have to offer a uniform interest rate on savings bank deposits up to Rs.1 lakh, irrespective of the amount in the account within this limit.
  • (b) Second, for savings bank deposits over Rs.1 lakh, a bank may provide differential rates of interest, if it so chooses, subject to the condition that banks will not discriminate in the matter of interest paid on such deposits, between one deposit and another of similar amount, accepted on the same date, at any of its offices.

Further, Banks may ensure that interest rate is applied, as stated above, on the end-of-day balances of all domestic savings deposits accounts and no discrimination is made at any of its offices. Prior approval of the Board / Asset Liability Management Committee (if powers are delegated by the Board) may be obtained by a bank while fixing interest rates on such deposits.

3. Whether banks can pay interest on savings bank accounts quarterly?

Banks can pay interest on savings bank accounts at quarterly or longer rests.

4. How is the computation of interest on savings bank deposits done by banks?

With effect from April 1, 2010 payment of interest on savings bank accounts by scheduled commercial banks would be calculated on a daily product basis.

5. How banks can pay interest on term deposits repayable in less than three months or where the terminal quarter is incomplete?

In such cases interest should be paid proportionately for the actual number of days reckoning the year as 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.

6. Whether banks can pay interest on term deposits monthly?

Interest on term deposits is payable at quarterly or longer rests.

7. Whether banks can pay differential rates of interest on term deposits aggregating Rs.15 lakh and above?

Differential rates of interest can be paid on single term deposits of Rs.15 lakh and above and not on the aggregate of individual deposits where the total exceeds Rs.15 lakh.

8. Whether banks can pay commission for mobilising deposits?

Banks are prohibited from employing/engaging any individual, firm, company, association, institution for collection of deposits or selling of deposit linked products on payment of remuneration or fees or commission in any form or manner 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 and pay reasonable commission/fees.

9. Whether banks can prematurely repay term deposits on their own?

A term deposit is a contract between the bank and the customer for a definite term and it cannot be paid prematurely at the bank’s option. However, a term deposit can be paid prematurely at the request of the customer subject to the terms of the contract, including penalty, if any.

10. Whether banks can refuse premature withdrawal of term deposits?

Banks may not normally refuse premature withdrawal of term deposits of individuals and Hindu Undivided Families (HUF), irrespective of the size of the deposit. However, banks at their discretion, may disallow premature withdrawal of large deposits held by entities other than individuals and Hindu Undivided Families. Banks should notify such depositors of their policy of disallowing premature withdrawals in advance, i.e. at the time of acceptance of deposits.

11. Whether banks can levy penalty for premature withdrawal?

Banks have the freedom to determine their own penal rates of interest for premature withdrawal of term deposits.

12. How and when are banks required to pay interest on the deposits maturing on holiday/ non-business working day/ Sunday?

Whenever the due dates fall on Saturday/Sunday/non-business working day/holidays, banks are permitted to pay interest on deposits at the originally contracted rate for the intervening period between the due date and date of payment so that no interest loss is suffered by the depositors.

13. Whether additional interest admissible to banks' staff can be paid on the compensation awarded by the court to a minor child and deposited in the joint names of minor child and parent?

No. As the money belongs to the minor child and not the banks' staff, additional interest cannot be paid.

14. Whether banks are permitted to offer differential rate of interest on other deposits?

Banks can formulate special fixed deposit schemes specifically for resident Indian senior citizens offering higher and fixed rates of interest as compared to normal deposits of any size.

15. At what rate is interest payable on a deposit standing in the name of a deceased depositor?
  • a. 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 depositors 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.
  • b. 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 May 1, 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 deposits as on the date of payment. However, in the case of NRE deposits, if the claimants are residents, the deposit on maturity is treated as a domestic rupee deposit and interest is paid for the subsequent period at the rate applicable to domestic deposits of similar maturity.

Banks can formulate special fixed deposit schemes specifically for resident Indian senior citizens offering higher and fixed rates of interest as compared to normal deposits of any size.

16. What are the guidelines for 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 rate, at the time of acceptance of the deposit. The policy should be non-discretionary and non-discriminatory.

II. DEPOSITS OF NON-RESIDENTS INDIANS (NRIs)

17. Whether banks are permitted to offer differential rate of interest on NRE deposits?

Banks are permitted to offer differential rates of interest on NRE term deposits as in the case of domestic term deposits of Rs.15 lakh and above.

18. Whether concessional rate of interest is applicable when a loan against FCNR(B) deposit is repaid in foreign currency?

Banks have the freedom to fix the rate of interest chargeable on loans and advances against FCNR(B) deposits to the depositors with reference to their Base rate irrespective of whether repayment is made in Rupees or in Foreign Currency.

19. Whether banks can accept recurring deposits under the FCNR(B) Scheme?

No. Banks cannot accept recurring deposits under the FCNR(B) Scheme.

20. Whether banks are permitted to offer differential rate of interest on FCNR(B) deposits?

Banks are free to decide the currency-wise minimum quantum on which differential rate of interest may be offered subject to the overall ceiling prescribed.

21. Whether FCNR(B) deposits can be renewed with retrospective effect (i.e. from the maturity date)? If yes, what is the rate of interest payable?

A bank may, at its discretion, renew an overdue FCNR(B) deposit or a portion thereof provided the overdue period from the date of maturity till the date of renewal (both days inclusive), does not exceed 14 days and the rate of interest payable on the amount of the deposit so renewed shall be the appropriate rate of interest for the period of renewal as prevailing on the date of maturity or on the date when the depositor seeks renewal, whichever is lower. In the case of overdue deposits where the overdue period exceeds 14 days and if the depositor places the entire amount of overdue deposit or a portion thereof as a fresh FCNR(B) deposit, banks may fix their own interest rates for the overdue period on the amount so placed as a fresh term deposit. Banks are free to recover the interest so paid for the overdue period if the deposit is withdrawn after renewal before completion of the minimum stipulated period under the scheme.

22. Whether interest rate stipulations applicable to loans in rupees under FCNR(B) schemes are applicable to loans denominated in foreign currency?

No. Interest rate stipulations applicable to loans in rupees under FCNR(B) schemes are not applicable to loans denominated in foreign currency, which are governed by the instructions issued by the Foreign Exchange Department of RBI.

23. Under what circumstances additional interest over and above the declared rate of interest can be paid in case of NRE & FCNR(B) deposits?

Banks should not allow the benefit of additional interest rate on any type of deposits of non-residents. Accordingly, the discretion given to banks to allow the benefit of additional interest rate of one per cent per annum as available to bank's own staff on deposits under NRE and FCNR(B) accounts stands withdrawn with effect from July 18, 2012..

24. In the case of a deceased depositor’s NRE/FCNR(B) deposit, in the event of legal heirs effecting premature withdrawal before completion of the minimum prescribed period, whether any interest is payable?

No. A deposit has to run for a minimum stipulated period, which is at present one year for both FCNR(B) and NRE deposits, to be eligible to earn interest..

25. Whether banks can pay interest on NRE and FCNR(B) deposits for the intervening Saturday, Sunday and holidays between the date of maturity and payment?

Yes. Whenever the due dates fall on Saturday/Sunday/non-business working day/holidays, banks are permitted to pay interest on NRE and FCNR(B) deposits at the originally contracted rate for the intervening period between the due date and date of payment so that no interest loss is suffered by the depositors.

III. ADVANCES

26. What is the Base Rate System?

The Base Rate system has replaced the erstwhile Benchmark Prime Lending Rate system with effect from July 1, 2010. Base Rate shall include all those elements of the lending rates that are common across all categories of borrowers. Banks may choose any benchmark to arrive at the Base Rate for a specific tenor that may be disclosed transparently. Banks are free to use any methodology, as considered appropriate, provided it is consistent and is made available for supervisory review/scrutiny, as and when required.

Banks may determine their actual lending rates on loans and advances with reference to the Base Rate and by including such other customer specific charges as considered appropriate.

Banks are required to review the Base Rate at least once in a quarter with the approval of the Board or the Asset Liability Management Committees (ALCOs) as per the bank’s practice. Since transparency in the pricing of lending products has been a key objective, banks are required to exhibit the information on their Base Rate at all branches and also on their websites. Changes in the Base Rate should also be conveyed to the general public from time to time through appropriate channels. Banks are required to provide information on the actual minimum and maximum lending rates to the Reserve Bank on a quarterly basis, as hitherto.

27. Are any exemptions available from the Base Rate Regime?

All categories of loans should henceforth be priced only with reference to the Base Rate. However, the following categories of loans could be priced without reference to the Base Rate: (a) DRI advances (b) loans to banks’ own employees (c) loans to banks’ depositors against their own deposits.

28. Can the Base Rate serve as a benchmark for floating loan product?

The Base Rate could also serve as the reference benchmark rate for floating rate loan products, apart from external market benchmark rates. The floating interest rate based on external benchmarks should, however, be equal to or above the Base Rate at the time of sanction or renewal.

29. Can banks extend loans/advances below Base Rate?

Since the Base Rate will be the minimum rate for all loans, banks are not permitted to resort to any lending below the Base Rate. Accordingly, the current stipulation of BPLR as the ceiling rate for loans up to Rs. 2 lakh stands withdrawn.

30. Whether the BPLR regime is still in operation.

From July 1, 2010 the Benchmark Prime Lending Rate system has been replaced by the Base Rate mechanism. However, for loans sanctioned prior to July 1, 2010 the BPLR regime is applicable. The renewal of such loans would however, be covered under the Base rate mechanism.