What changed
RBI clarified that the deregulation of savings bank deposit interest rates, initially announced in November 2011, applies only to domestic savings deposits held by residents in India. Banks must now calculate interest on these deposits based on the end-of-day balance, with a uniform rate for balances up to Rs. 1 lakh and the option to apply differential rates for balances exceeding Rs. 1 lakh.
What it means for you
For urban co-operative banks, this clarification standardizes the calculation method for savings deposit interest, ensuring uniformity across all branches. Banks can now offer tiered interest rates on larger balances, potentially attracting high-value depositors, but must obtain board or ALCO approval for rate setting. This may increase operational complexity but offers flexibility in pricing.
What you must do
- Update your savings deposit interest calculation system to use end-of-day balances for all domestic resident accounts.
- Set a uniform interest rate for balances up to Rs. 1 lakh and decide on differential rates for balances above Rs. 1 lakh, if any.
- Obtain prior approval from the Board or delegated ALCO for the fixed interest rates on savings deposits.
- Ensure no discrimination in interest rate application across any of your bank's offices.
Who it affects
All Primary (Urban) Co-operative Banks, Domestic resident savings account holders, Bank treasury and ALCO teams
Does this circular apply to NRI savings accounts?
No, the clarification specifies that the revised guidelines apply only to domestic savings bank deposits held by residents in India.
Can we offer different interest rates for balances above Rs. 1 lakh?
Yes, for any end-of-day balance exceeding Rs. 1 lakh, banks may apply differential rates as fixed by them, subject to board/ALCO approval.
What is the effective date for these changes?
The circular was issued on February 7, 2012, and references the earlier November 25, 2011 circular. Banks should implement these clarifications immediately.