Quick answerRBI now requires agency banks to compensate Relief/Savings Bond investors at the Savings Bank rate for delays in interest warrants or maturity proceeds, effective from July/August 2005 interest due.
What changed
RBI introduced a compensation structure for investors in Relief/Savings Bonds who suffer financial loss due to late receipt or delayed credit of interest warrants or maturity value. The compensation is payable at the current Savings Bank rate. For interest warrants, the period of delay is calculated from the day after the coupon date (e.g., 2 January/February/July/August) to the actual date of receipt or credit, excluding that date. For maturity proceeds, delay is calculated from the date of maturity or five clear working days after submission of discharged securities, as applicable.
What it means for you
Banks must now proactively ensure timely dispatch of interest warrants (one month before due date) and prompt credit of maturity proceeds (within five working days of receiving discharged securities). Failure to do so will result in compensation costs at the Savings Bank rate, increasing operational pressure to streamline bond servicing processes. This aligns with RBI's focus on better customer service and penalizes delays.
The rule, in the simplest words
Banks must pay compensation to Relief/Savings Bond investors at the Savings Bank rate for delays in interest or principal payments
Compensation is calculated from the day after the interest is due or the maturity date, excluding that date
Banks must dispatch interest warrants at least one month before the due date and credit maturity proceeds within five working days of receiving discharged securities
How it plays out — a real example
A bond operations officer in Mumbai must ensure that interest warrants are sent to investors on time, and if there's a delay, calculate the compensation at the Savings Bank rate. For instance, if an investor was supposed to receive their interest warrant on August 1st but received it on August 15th, the officer would need to calculate the compensation from August 2nd to August 15th. This new rule helps the officer provide better customer service and avoid extra costs for the bank.
What you must do
Review and tighten internal timelines for dispatching interest warrants at least one month before the coupon date.
Ensure maturity proceeds are credited or payment orders issued within five clear working days of receiving discharged securities.
Set up a mechanism to track delays and calculate compensation at the current Savings Bank rate from the day after the coupon date.
Update systems to handle compensation for both postal and ECS/account credit modes for all bond holding types.
Communicate the new compensation policy to relevant operations and customer service teams.
Who it affects
Agency banks handling Relief/Savings Bonds (SBI, associate banks, nationalised banks, UTI Bank, ICICI Bank, HDFC Bank, IDBI Bank, SHCIL), Bond operations and customer service departments, Investors in Relief/Savings Bonds (non-cumulative and cumulative)
What rate is used for compensating delayed bond payments?
Compensation is paid at the current Savings Bank rate, as decided by RBI, for the period of delay.
How is the delay period calculated for interest warrants?
For interest warrants, delay is counted from the day after the coupon date (e.g., 2 January) to the actual date of receipt or credit, excluding that date. This applies to both postal and ECS/account credit modes.
Does this apply to cumulative bonds?
Yes, but for cumulative bonds, interest is paid along with principal at maturity, so the compensation applies to delayed maturity proceeds, not separate interest warrants.
📜 Read the original circular — full text as issued by RBI
RBI/2004-05/477
CO.DT.No.13.01.298 / H - 9786 / 2004-05
May 20, 2005
Vaisakha 30, 1927(S)
The Chairman / Managing Director
State Bank of India / Associate Banks /
17 Nationalised Banks / UTI Bank Ltd., ICICI Bank Ltd.,
HDFC Bank Ltd., IDBI Bank Ltd. & SHCIL
Dear Sir,
Committee on Procedures and Performance Audit on Public Services (CPPAPS) - Report No. 2 - Compensation structure for delay in payment of interest and / or Principal
Agency banks are already aware that in terms of instructions issued to them, interest warrants in case of non-cumulative bonds are required to be despatched one month before the due date . Interest in respect of cumulative bonds is, however, paid along with the principal at the time of maturity. The procedure for repayment of principal amount is already prescribed at paragraph 1.18 of the Memorandum of Procedure and our Circular CO DT No. 13.01.298 / H-6913 / 2003-04 dated 17.04.2004.
2. Further, in terms of instructions contained in our letter dated March 24, 2004, the repayment may be made either by credit to the Savings Bank account of the investor or by issue of Payment Order. In terms of our letter DGBA DT No. 13.01.298 / H-6252 / 2003-04 dated April 22, 2004, the maturity value must be sent to the bond holders within five clear working days on receipt of the duly discharged securities / acquittance by the office, in case the holders tender the same after the date of maturity .
3. With a view to providing better customer service to the investors in Relief / Savings Bonds, it has now been decided to compensate such investors at the current Savings Bank rate , on account of financial loss incurred by them due to late receipt / delayed credit of interest warrants / maturity value of the investments, despite the existing instructions as enumerated in the foregoing paragraphs.
4. For the purpose of compensating the investors for delay in receipt of interest warrants / maturity proceeds, the period of delay needs to be reckoned as under:
I. Delayed receipt of interest warrants -
Form of Holding
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2004-05/477 · issued 20 May 2005. The plain-English explanation above is BankPulse’s own independent summary.
Test yourself
Quick self-check built only from the facts already on this page — tap a question to reveal the answer.
Q1. In one line, what does this circular do?
RBI now requires agency banks to compensate Relief/Savings Bond investors at the Savings Bank rate for delays in interest warrants or maturity proceeds, effective from July/August 2005 interest due.
Q2. Who does this circular apply to?
Agency banks handling Relief/Savings Bonds (SBI, associate banks, nationalised banks, UTI Bank, ICICI Bank, HDFC Bank, IDBI Bank, SHCIL), Bond operations and customer service departments, Investors in Relief/Savings Bonds (non-cumulative and cumulative)
Q3. What is the first thing you should do about it?
Review and tighten internal timelines for dispatching interest warrants at least one month before the coupon date.
Communicate the new compensation policy to relevant operations and customer service teams.
💻 IT / Systems
Update systems to handle compensation for both postal and ECS/account credit modes for all bond holding types.
📜 Compliance
Review and tighten internal timelines for dispatching interest warrants at least one month before the coupon date.
Ensure maturity proceeds are credited or payment orders issued within five clear working days of receiving discharged securities.
Set up a mechanism to track delays and calculate compensation at the current Savings Bank rate from the day after the coupon date.
Communicate the new compensation policy to relevant operations and customer service teams.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (Agency banks handling Relief/Savings Bonds (SBI, associate banks, nationalised banks, UTI Bank, ICICI Bank, HDFC Bank, IDBI Bank, SHCIL), Bond operations and customer service departments, Investors in Relief/Savings Bonds (non-cumulative and cumulative)), your first concrete step on “RBI mandates compensation for delayed bond interest/principal payments” is: “Review and tighten internal timelines for dispatching interest warrants at least one month before the coupon date.” (RBI issued this 20 May 2005).
Circular: RBI/2004-05/477 -- RBI mandates compensation for delayed bond interest/principal payments
Issued: 20 May 2005
Action required: Review and tighten internal timelines for dispatching interest warrants at least one month before the coupon date.
Action required: Ensure maturity proceeds are credited or payment orders issued within five clear working days of receiving discharged securities.
Action required: Set up a mechanism to track delays and calculate compensation at the current Savings Bank rate from the day after the coupon date.
Action required: Update systems to handle compensation for both postal and ECS/account credit modes for all bond holding types.
Action required: Communicate the new compensation policy to relevant operations and customer service teams.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
AI-drafted · AI fact-check pending · under the editorial review of our expert review panel · decoded & published by BankPulse · 21 Jun 2026, 09:10 IST
Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=2271&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert review panel. Independent platform, not affiliated with the Reserve Bank of India; never reproduces RBI text verbatim.
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