Regulation of Interest Rate on Deposits in India

December 14, 2019
SEBI Grade A Test Series

The Reserve Bank of India has been conferred with the powers to regulate Interest Rate on Deposits under Sections 21 and 35 A of the Banking Regulation Act, 1949 (for Co-operative banks 35 A read with section 56). The RBI has issued master directions namely Reserve Bank of India (Interest Rate on Deposits) Directions, 2016 vide DBR. Dir. No.84/13.03.00/2015-16 on March 03, 2016 which was subsequently updated on February 22, 2019 on Regulation of Interest Rate on Deposits

Regulation of Interest Rate on Deposits

Rate of Interest on Deposits

  • Scheduled commercial banks can pay interest on deposits as per policy on interest rates on deposits duly approved by the Board of Directors of bank.
  • The rates shall be uniform across all branches and for all customers and there shall be no discrimination in the matter of interest paid on the deposits, between one deposit and another of similar amount, accepted on the same date, at any of its offices.
  • No interest is paid on deposits held in current accounts
  • Interest on domestic rupee savings deposits should be calculated on a daily product basis:
    • A uniform interest rate shall be set on balance up to Rupees one lakh, irrespective of the amount in the account within this limit.
    • Differential rates of interest may be provided for any end-of-day savings bank balance exceeding Rupees one lakh.
  • Banks have the freedom to determine the maturity/tenor of the deposit subject to the condition that minimum tenor of the deposit offered shall be seven days
  • Differential interest rate can be offered only on bulk deposits. Bulk Deposit means term deposits of Rs 2 crore and above for Scheduled Commercial Banks and Small Finance Banks and Rs 15 lakh and above for RRBs.
  • all term deposits accepted from individuals (held singly or jointly) for amount of Rupees fifteen lakh and below shall have premature-withdrawal-facility

Master Circulars – Regulation of Interest Rate on Deposits

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