DBOD.No. Dir.BC.34/13.03.00/98

April 29, 1998

Vaishakha 9, 1920 (Saka)

Interest Rates on Deposits


In exercise of the powers conferred by Sections 21 and 35A of the Banking Regulation Act, 1949 and in modification of its Directive DBOD. No. Dir. BC. 151/C.347-85 dated December 27, 1985, as amended from time to time, the Reserve Bank of India, being satisfied that it is necessary and expedient in the public interest so to do, hereby directs that

(i) Annexure 1 to the aforesaid Directive shall be substituted by the revised Annexure.

(ii) paragraph 8 of the aforesaid Directive shall be substituted by the following:

"8. Premature withdrawal of term deposit

(i) The bank on request from the depositor, shall 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 shall have the freedom to determine their own penal interest rates for premature withdrawal of term deposits. This will apply to fresh deposits and renewal of deposits. The bank shall ensure that the depositors are made aware of the applicable penal rate along with the deposit rate.

(ii) The effective date of such changes shall be announced by banks as early as possible"

(iii) the clause (c) of paragraph 17 of the aforesaid Directive shall be substituted by the following :

"(c) discriminate in the matter of rate 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 domestic term deposits of Rs. 15 lakh and above on the basis of size of deposits. The permission to offer varying rates of interest will be subject to the following conditions :

(a) The permission to offer varying rates of interest for deposits of the same maturity shall apply to domestic term deposits of Rs. 15 lakh and above. Banks may therefore offer same rate of interest or differential rates of interest for domestic deposits of Rs. 15 lakh and above. For domestic deposits below Rs. 15 lakh of the same maturity the same rate will apply.

(b) 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 not be subject to negotiation between the depositor and the bank.

Banks should announce the effective date of change in the policy at the earliest".

(iv) Clause (ii) of paragraph 10 of the aforesaid Directive shall be substituted by the following.

"(ii) Non-resident (External) Rupee Account

The bank may, at its discretion, renew an overdue 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 NRE term deposit, banks may fix their own interest rates for the overdue period on the amount so placed as a fresh deposit."

(v) Paragraph 11(a) of the aforesaid directive shall be substituted by the following:

"When an advance is granted against a term deposit and the deposit stands in the name of

(i) the borrower either singly or jointly,

(ii) one of the partners of a partnership firm and the advance is made to the said firm,

(iii) the proprietor of a proprietory concern and the advance is made to such a concern,

(iv) 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 capacity, the interest rate chargeable shall be equal to bank's Prime Lending Rate or less".

2. The other provisions of Directive DBOD. No. Dir. BC. 151/C.347-85 dated 27 December 1985, as amended from time to time, shall remain unchanged.

(S. Gurumurthy)

Executive Director

Annexure

Rate of interest on deposits

(Excluding Non-resident Deposits)

Category of Account    Percent per annum

(i) Current                      Nil

(ii) Savings                      4.5

(iii) Term deposits

15 days and over         Free