RBI asks banks to pay interest on

savings account on quarterly basis

"Interest on savings deposit shall be credited at quarterly or shorter intervals (on domestic savings
deposits)," RBI said in a master circular issued on March 3. (Reuters)

Tue, 15 Mar 2016-03:31pm , Mumbai , PTI

At present, the interest is credited to savings bank accounts on a half-yearly

basis.
The Reserve Bank of India (RBI) has asked banks to pay interest on savings
banks account on a quarterly basis or shorter duration, a move which will
benefit crores of savings account holders.
At present, the interest is credited to savings bank account on a half-yearly
basis. The interest rate on savings bank account is calculated on a daily basis
since April 1, 2010.
"Interest on savings deposit shall be credited at quarterly or shorter intervals
(on domestic savings deposits)," RBI said in a master circular issued on March
3.
While public sector banks offer 4% interest on savings deposit, private players
offer as much as 6%.
In 2011, the central bank had decided to give freedom to commercial banks to
fix savings bank deposit rates, the last bastion of the regulated interest-rate
regime. While giving banks this freedom, RBI had said a uniform rate will
have to be offered on deposits of up to Rs 1 lakh.
On higher amounts, banks are allowed to offer differential rates to depositors.
According to analysts, the lower the periodicity, the higher will be the benefit
to savers. Banks will have to shell out more to customers.
As per estimates, the lower periodicity of interest payment may put a burden
of Rs 500 crore on banks.
Earlier, banks used to give the interest of 3.5% on savings accounts on the
basis of the least deposit in an account between the 10th and the last day of
each month.

Banks told to pay interest on SB account on

quarterly basis
MUMBAI, MARCH 15:
Here is some good news for savings bank depositors. They will earn slightly better returns on
their savings bank (SB) deposits as the Reserve Bank of India has mandated that banks should
credit interest on savings deposit at quarterly or shorter intervals.
Referring to RBIs Master Direction on interest rate on deposits, Ashish Das, Professor of
Statistics, IIT-B, said in the absence of any regulation on interest application frequency, till now
most of the banks were paying interest on the SB deposits, that accounts for more than a quarter
of the total deposit pie, at an interval of six months.
Under the prevailing SB interest of 4 per cent per annum, the new regulation would benefit the
SB depositors to the tune of 500 crore or more from the next financial year, said Das in his
report on Interest on Deposits Moving Towards Computing Standards.
Though this is a major step in favour of the depositors, the Professor observed that it has left a
disparity compared to loans.
For loans taken from the banks, the interest is computed at monthly rests. In other words, if a
borrower defers payment of interest by two months, the banks charge two months interest on the
delayed interest.Das felt that though the RBI has deregulated rates of interest on term deposits,
SB deposits and loan accounts, it still regulates the interest application frequency on such
products, disharmoniously.
The Professor said: The regulator provides no rationale on why interest application frequencies
on deposit accounts (quarterly or shorter intervals) are different from those for loan accounts
(monthly intervals) which is to the benefit of the banks and detrimental to the interest of the
borrowers and, more so, depositors.
The RBI has a responsibility to bring in standards and transparency in interest application
frequency, in the interests of the depositors.
Das noted that the RBI has also left to the banks the method that they may adopt for computing
interest.
Absence of regulation gives banks the freedom to decide, in a non-transparent fashion, the
effective annualised returns on deposits held by them. With this, the depositors are burdened
with the problem of shopping among banks for the most attractive methodology used in their
interest application and computation procedures, he said.
He observed that depositors are neither capable to make such comparisons nor aware that such
matters affect his return and their ignorance is a big asset for banks.
(This article was published on March 15, 2016)

No negative balances in savings accounts: RBI

Mayur Shetty, TNN May 11, 2016, 11.30AM IST

MUMBAI: Negative balances in savings accounts due to penalty charges

are now history following a directive from the central bank. The RBI has
asked banks to stop imposing charges for non-maintenance of minimum
balance once the balance in a savings account touches zero.
Although the norms came into effect last year, some banks were continuing
with the practice of creating negative balances in savings accounts until
recently. According to the RBI, if any bank continues to debit charges on a
savings account creating a negative balance, customers can approach the
banking ombudsman. Most banks contacted by TOI said that they do not
create a negative balance in savings bank accounts.
Savings accounts usually go into negative balances when the customer
changes his job and his 'salary account' ceases to receive funds. Most
banks offer special facilities for salary accounts, waiving the minimum
balance requirement. But when the customer quits his job, the account
ceases to be a salary account and the bank begins to apply minimum
balance requirements. Since there is no regular salary flowing in, The bank
begins to debit a penalty for non-maintenance of minimum balance, which
often results in the balance turning negative. Although banks do not pursue
recovery of the amount due under negative balance accounts, the
customer stands to lose if he deposits funds into the account.
In response to an email sent by TOI, HDFC Bank said it "does not allow the
balance in a savings account to go negative due to imposition of charges
for non-maintenance of minimum balance". The statement added that there
are no charges for reactivation of the account in future. Axis Bank said that
as a policy it does not accumulate charges for non-maintenance of
balance. "In case the account has no balance and has no customerinduced transaction during the month of observation, service charge related
to non-maintenance of balance is not applied, nor is any lien/negative
balance created," the bank said in an emailed response to a query. An
ICICI Bank spokesperson also said that it does not create negative
balances in savings accounts.
The RBI had in 2014 revised its guidelines for banks imposing penal
charges for non-maintenance of minimum balance in a savings bank
account. Subsequently, with effect from April 1, 2015, it had asked banks
not to take undue advantage of customer difficulty or inattention and to give
an advance notice to the customer before deducting charges from their
bank balance. It had asked banks to send notice either by SMS, email or a

letter. However, some banks had continued to impose charges resulting in

the balance in a savings account turning negative.