DBOD.No.Dir.BC. 60/13.03.00/98
June 15, 1998
Jyestha 25, 1920 (Saka)
The Chairmen of all
Regional Rural Banks
Dear Sir,
monetary and credit policy measures
Consequent on the statement released
by the Governor, Reserve Bank of India on "Monetary and Credit Policy for
the First Half of 1998-99", Directive DBOD No. Dir. BC. 34/13.03.00/98
dated April 29, 1998 was issued, a copy of which is enclosed. We advise that
the following changes in policy measures will be applicable to Regional Rural
Banks.
1. Deposit Rates
(a) Minimum period of maturity
of domestic term deposits
In terms of circular DBOD No. Dir.
BC. 90/13.01.01/96 dated July 1, 1996 the minimum period of domestic term deposits
was reduced from 46 days to 30 days. It has now been decided to further reduce
the minimum period of maturity of domestic term deposits from 30 days to 15
days.
As per our circular DBOD No. Dir.
BC. 22/13.01.05/97 dated March 15, 1997 banks are required to allow premature
withdrawal of term deposits and pay interest at the rate applicable to the period
for which the deposit had remained with the bank or at a contracted rate, whichever
is lower, less one per cent penalty for the premature withdrawal. It has now
been decided to permit banks to determine their own penal interest rates for
premature withdrawal of domestic term deposits. This relaxation will apply to
fresh deposits and renewal of existing deposits. Banks shall, however, ensure
that the depositors are made aware of the applicable penal rate along with the
deposit rate.
(c) Interest rates on domestic
term deposits
It has been decided to permit banks
at their discretion to offer differentiul rates of interest on domestic term
deposits of the same maturity subject to the following conditions :
i) The permission to offer varying
rates of interest for deposits of the same maturity will 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 deposits of
Rs. 15 lakh and above of the same maturity. For deposits below Rs. 15 lakh the same rate will apply for deposits of the same maturity.
ii) 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.
iii) The Boards of banks should lay down a policy in this regard. Banks should
announce the effective date of change in the policy at the earliest.
2. Lending rates
Advances against domestic term
deposits
As per instructions in RBI Circular DBOD No. Dir. BC. 109/13.01.09/95 dated September 29, 1995 read with Circular DBOD No. Dir. BC 98/13.01.04/96 dated July 4, 1996, interest rates chargeable on loans and advances granted against domestic term deposits upto Rs. 2 lakh is two percentage points above deposit rates and for advances over Rs. 2 lakh the interest rate chargeable is not less than bank's own PLR. In terms of Circular DBOD No. Dir. BC. 114/13.07.01/96 dated August 24, 1996 the RRBs have been given freedom to determine their lending rates. It has now been decided that advances against domestic deposits to the depositor, should be at an interest rate not exceeding the normal lending rate which the bank is charging on its best borrowal accounts.
The effective date of changes mentioned
above shall be announced by banks as early as possible.
Yours faithfully
(M.P. Kothari)
General Manager