RBI, In order to consolidate Interest Rate on Deposits applicable to banks has issued a comprehensive Master Direction.
- Comprehensive Policy on Interest Rates
The first and foremost requirement is that banks must have a clear, comprehensive policy on interest rates. This policy must be approved by the bank’s Board of Directors or a designated committee. This ensures that the decisions regarding interest rates are made at the highest level, with careful consideration and oversight. A well-drafted policy helps maintain uniformity and fairness in the rates offered to depositors across different branches and regions.
- Uniform Rates Across Branches
One of the key principles outlined in the framework is that the interest rates on deposits must be uniform across all branches of a bank. This eliminates the possibility of discrimination, ensuring that customers are offered the same rates for deposits of similar amounts, regardless of the branch or location. This policy promotes fairness and reduces any biases or inconsistencies that could arise if banks were allowed to set different rates at different branches.
- Transparency in Disclosure
Banks are required to disclose their interest rate schedules in advance. This transparency helps depositors make informed decisions when selecting deposit schemes. It also ensures that there is no ambiguity in terms of what rate a customer can expect to receive at the time of deposit, reducing the potential for disputes or confusion.
- No Negotiation on Rates
A critical aspect of this framework is that the interest rates are non-negotiable. This is particularly important as it prevents any manipulation or preferential treatment based on customer profiles or relationships with bank staff. By adhering to a set schedule, banks promote fairness and discourage unethical practices.
- Interest Calculation and Rounding Off
The method of calculating and paying interest is also clearly defined. For rupee deposits, interest is rounded off to the nearest rupee, while for FCNR(B) deposits, it is rounded off to two decimal places. This standardization ensures that interest calculations are simple and transparent, further enhancing trust between the bank and its customers.
- Maturity of Deposits on Non-Business Days
Another important provision is how banks handle deposits maturing on non-business days. If a term deposit matures on a non-business working day, banks are required to pay interest at the original contracted rate for that day. This is to ensure that depositors are not penalized for the bank’s holiday schedule, and their earnings are preserved.
- Handling Deposits Transferred Between Branches
In cases where a branch is transferred or taken over by another bank, the deposit accounts are automatically transferred to the new branch, and the original interest rates continue to apply until maturity. This ensures continuity for the depositor, who does not need to renegotiate terms after a branch takeover.
- Premature Withdrawal and Penalties
The framework also provides clarity on penalties for premature withdrawal of term deposits. Banks must have a clear policy in place, approved by the Board, outlining any penalties. Importantly, if the deposit is split or transferred due to certain circumstances, like the death of the depositor, no penalties should be levied, as long as the terms remain unchanged.
- Additional Interest for Bank Employees and Senior Citizens
The framework allows banks to offer additional interest for certain groups, including employees of the bank, senior citizens, and retired staff. For example, employees may receive an additional 1% on deposits, and senior citizens may receive preferential interest rates on term deposits. This benefits groups that may rely on fixed income from their savings.
- Interest on Overdue Deposits
When a term deposit matures and the proceeds remain unclaimed, banks are required to pay interest on the amount either at the rate applicable to savings accounts or the contracted rate, whichever is lower. This ensures that depositors who forget or delay claiming their proceeds are not penalized.
