What changed
The interest rate on domestic savings deposits, ordinary Non-Resident savings deposits, and savings deposits under the Non-Resident (External) Accounts Scheme was increased by 0.5 percentage point from 3.5% to 4.0% per annum. This change took effect immediately from May 3, 2011, superseding the previous directive from February 28, 2003, to this extent.
What it means for you
Banks must immediately apply the new 4% rate on all eligible savings deposits, including NRE accounts, increasing their interest cost on these liabilities. This move may encourage depositors to park more funds in savings accounts, but lenders need to manage the higher cost of funds without disrupting their net interest margins.
What you must do
- Update your core banking system to reflect the new 4% savings deposit rate for domestic, ordinary Non-Resident, and NRE accounts effective May 3, 2011.
- Communicate the rate change to all branches and ensure compliance with the amended directive.
- Review your deposit pricing strategy to manage the impact on cost of funds and net interest margins.
- Retain all other existing instructions on deposit rates as unchanged.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Depositors with domestic savings accounts, Non-Resident Indians with NRE savings accounts, Ordinary Non-Resident savings account holders
Which accounts are affected by this rate hike?
Domestic savings deposits, ordinary Non-Resident savings deposits, and savings deposits under the Non-Resident (External) Accounts Scheme are all covered. The rate increased from 3.5% to 4.0% per annum.
When does this new rate become effective?
The directive was issued on May 3, 2011, and the rate is applicable with immediate effect from that date.
Are any other deposit rate instructions changed?
No. Only the savings deposit rate is revised. All other instructions on deposit rates remain unchanged as per the circular.