TMI BlogMaster Circular on Interest Rates on Rupee Deposits held in Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) AccountsX X X X Extracts X X X X X X X X Extracts X X X X ..... s on Rupee Deposits held in Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts CONTENTS Para. No Particulars A Purpose B Classification C Previous instructions D Application 1 Introduction 1.1 Domestic Deposits 1.2 Ordinary Non-Resident (NRO) Accounts 1.3 Non-Resident (External) (NRE) Accounts 1.4 Interest Rate Regulation on NRE and NRO Deposits 2 Guidelines 2.1 Definitions 2.2 Minimum tenor and rates of interest payable on Savings deposits and on Term deposits 2.3 Payment of interest on fixed deposit - Method of calculation of interest 2.4 Additional interest to Army Group Insurance Directorate, etc. 2.5 Discretion to pay additional interest not exceeding one percent on deposits of bank s staff and their exclusive associations 2.6 Discretion to pay additional interest not exceeding one per cent on deposits of Chairman and Managing Director and Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olidates and updates the instructions on the above subject contained in the circulars listed in APPENDIX. D. Application To all scheduled commercial banks, excluding Regional Rural Banks. Structure 1. INTRODUCTION 2. 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 pay additional interest not exceeding one percent on deposits of bank s staff and their exclusive associations 2.6 Discretion to pay additional interest on deposits of Chairman and Managing Director and Executive Directors of the bank 2.7 Discretion to pay interest on current account maintained by RRBs with sponsor bank 2.8 Discretion to pay interest on the minimum credit balance in the composite cash credit account of a farmer 2.9 Deposit Scheme for Senior Citizens 2.10 Premature withdrawal of term deposit 2.11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estic term deposits of various maturities with the prior approval of their respective Board of Directors/Asset Liability Management Committee (ALCO). The interest rate on savings bank accounts too, has been deregulated with effect from October 25, 2011, subject to the conditions mentioned at paragraph 2.2B (iii). A domestic rupee account may be opened as current, savings or term deposit. 1.2. Ordinary Non-Resident (NRO) Accounts NRIs can open Non-Resident Ordinary (NRO) deposit accounts for collecting their funds from local bonafide 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 accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. With a view to providing greater flexibility to banks in mobilising non-resident deposits and also in view of the prevailing market conditions, it was decided to deregulate interest rates on Non-Resident (External) Rupee (NRE) Deposits and Ordina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Savings Deposit nor Term Deposit; (h) Countervailing interest means any benefit of interest allowed on any account in the nature of current account maintained with the bank by its borrower; (i) 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; (j) Public Sector Bank means the State Bank of India constituted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st rate on savings bank deposits up to Rupees one lakh, irrespective of the amount in the account within this limit. While calculating interest on such deposits, banks are required to apply the uniform rate set by them on end-of-day balance up to Rupees one lakh. Second, for any end-of-day savings bank balance exceeding Rupees one 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. (vi) A bank must obtain prior approval of its Board/Asset Liability Management Committee (if powers are delegated by the Board) for fixing interest rates on deposits. (v) 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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, only on the term deposits for two years and above of Army Group Insurance Directorate (AGID), Naval Group Insurance Fund (NGIF) and Air-Force Group Insurance Society (AFGIS), provided such deposits are not in any way linked with payment of insurance premia by the bank. 2.5 Discretion to pay additional interest not exceeding o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 2.5.4 Bank Employees Federations in which bank employees are not direct members are not eligible for additional interest. 2.5.5 In case of Domestic deposits, it will be in order for banks to give their resident Indian 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. 2.5.6 Prior to July 18, 2012, 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posit is the HUF and not the Karta in his individual capacity. 2.10 Premature withdrawal of term deposit (i) 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. Prior to April 1, 2013, the bank had discretion to disallow premature withdrawal of large deposits held by entities other than individuals and Hindu Undivided Families (HUFs). With effect from April 1, 2013, banks will have the discretion to disallow premature withdrawal of a term deposit in respect of bulk de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such term deposits without reducing the interest by way of penalty, provided that the deposit remained with the bank after reinvestment for a period longer than the remaining period of the original contract. However, on a review and in order to facilitate better asset-liability management (ALM), with effect from April 20, 2010, banks are permitted to formulate their own policies towards conversion of deposits. 2.12 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. 2.13 Advance against term deposit - Manner of charging interest (a) 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 wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts ** * The term loan shall include all types of fund based/non-fund based facilities. ** In case of FCNR (B) deposits the margin requirement shall be notionally calculated on the rupee equivalent of the deposits in accordance with para 9(2) of Schedule-2 of Foreign Exchange Management (Deposit) Regulations, 2000. Further, the facility of premature withdrawal of NRE/FCNR deposits shall not be available where loans against such deposits are to be availed of. This requirement may specifically be brought to the notice of the deposit holder at the time of sanction of the loan. The existing loans which are not in conformity with the above instructions shall continue for their existing term and shall not be rolled over/renewed. Other conditions as regards grant of loan against NRE/FCNR deposits shall remain unchanged. 2.16 Interest payable on the deposit account of 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 depositor has died, the criterion for payment of interest on matured deposits in the event of death of the depositor in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rging of interest on advances, should be rounded off to the nearest rupee i.e., fractions of fifty paise and above shall be rounded off to the next higher rupee and fractions of less than fifty 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. 2.20 Issue of term deposit receipt (a) A bank should issue term deposit rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49. 2.22.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. 2.23 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 transpar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as any other existing savings bank deposit account in that bank, he / she will be required to close it within 30 days from the date of opening a 'Basic Savings Bank Deposit Account'. The existing basic banking 'no-frills' accounts should be converted to 'Basic Savings Bank Deposit Account' as per the instructions contained above. 2.25 Exemptions The provisions in the above paragraphs will not apply to: (i) 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 Certif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its 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. (d) 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 beh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r other-wise, for such clients receiving such deposits on maturity. (m) grant advances against fixed deposit receipts or other term deposits of other banks. (n) (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. (ii) The above prohibition will not apply in the case of organisations/agencies listed in Annex 3. ANNEX 1 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis points, as on the last working day of the previous month, for US dollar of corresponding maturities (as against LIBOR / SWAP rates plus 175 basis points effective from close of business on November 15, 2008). From the close of business in India on November 15, 2008 to November 22, 2011, 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). 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. The above changes in interest rates will also apply to repatriable NRE deposits renewed after their present maturity period. With effect from 29.04.2003, the maturity period of fresh NRE deposits should normally be one year to three years. In case a particular bank, from its Asset Liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / 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. APPENDIX List of circulars consolidated in the Master Circular onInterest Rates on Rupee Deposits held in Domestic/NRO/NRE Accounts Sl Circular No. Date Subject 1. DBOD.No.Dir.BC.46 47/13.03.00/2000-2001 4.11.2000* Master Directive on Interest Rates on Rupee Deposits held in Domestic, Ordinary Non-Resident (NRO), Non-Resident Special Rupee (NRSR) and Non-Resident (External) (NRE) Accounts 2. DBOD.No.FSC.BC.61/24.91.001/2000 29.12.2000 Permission to Participate in Call/Notice Money Market and Bills Rediscounting Scheme - Private Sector Mutual Funds 3. DBOD.No.Dir.BC.62/13.03.00/2000-01 03.01.2001 Interest Rates o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .No.Dir.BC.38/13.03.00/2002-03 05.11.2002 Mid-term Review of Monetary and Credit Policy for the year 2002-03 - Interest Rates on Deposits by Banks/RRBs/Local Area Banks 18. DBOD.No.FSC.BC.45/24.92.001/2002-03 03.12.2002 Permission to Participate in Call/Notice/Term Money Market and Bills Rediscounting Scheme - Primary Dealers 19. DBOD.No.Dir.BC.50 51/13.03.00/2002-03 14.12.2002 Opening of Saving Bank Accounts in the Name of certain Bodies/Organizations 20. DBOD.No.Dir.BC.53/13.10.00/2002-03 26.12.2002 Minimum Balance in Savings Bank Accounts 21. DBOD.No.Dir.BC.75 76/13.03.00/2002-03 28.02.2003 Interest Rates on Deposits 22. DBOD.No.FSC.BC.85 86/24.91.001/2002-03 26.03.2003 Permission to Participate in Call/Notice/Term Money Market and Bills Rediscounting Scheme - Primary Dealers 23. DBOD.No.FSC.BC.86/24.92.001/2002-03 26.03.2003 Permission to Participate in Call/Notice Money Market and Bills Rediscounting Scheme - Private Sector Mutual Funds 24. DBOD.No.Dir.BC.101 102/13.01.09/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 Loans to Non Residents / third party against security of Non Resident (External) Rupee Accounts (NR (E) RA) / Foreign Currency Non Resident (Bank) (FCNR(B)) deposits 39 DBOD.No.Dir.BC.54 55/13.03.00/2006-07 31.01.2007 Interest Rates on Non-Resident (External) Rupee (NRE) Deposits and FCNR(B) deposits 40 DBOD.No.Dir.BC.70/13. 01.01/2006-07 30.03.2007 Rounding off cheques to the nearest rupee 41 DBOD.No.Dir.BC.88 89/13.03.00/2006-07 24.04.2007 Interest Rates on Non-Resident (External) Rupee (NRE) Deposits and FCNR(B) deposits 42 DBOD.No.Leg.BC.94/09.07.005/2006-07 07.05.2007 Annual Policy Statement for the year 2007- 08 IT-enabled Financial Inclusion 43 DBOD No. Dir. BC. 39/13.03.00/2007-08 25.10.2007 Deposit schemes with lock-in period 44 DBOD.No.Leg.BC.34/09.07.005/2008-09 22.08.2008 Unclaimed Deposits / Inoperative Accounts in banks 45 DBOD.No.Leg.BC.47/09.07.005/2008-09 19.09.2008 Payment of interest on accounts frozen by banks 46 DBOD.No.Di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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