TaxTMI 
TaxTMI 
TaxTMI 
Master Circular on Interest Rates on Rupee Deposits held in Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts
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....===== Document 1 CONTENTS Para NoParticularsPage No. APurpose1 BClassification1 CPrevious instructions1 DApplication1 1.Introduction3 1.1Domestic Deposits3 1.2Ordinary Non-Resident (NRO)3 1.3Non-Resident (External) (NRE) Accounts3 1.4Interest Rate Regulation4 2.Guidelines4 2.1Definitions4 2.2Minimum tenor and rates of interest payable on Savings deposits and on Term deposits6 2.3Payment of interest on fixed deposit - Method of calculation of interest7 2.4Additional interest to Army Group Insurance Directorate, etc.8 2.5Discretion to Regional Rural Banks / Local Area Banks to pay additional interest8 2.6Discretion to pay additional interest not exceeding one percent on deposits of bank's staff and their exclusive associations8 2.7Discretion to pay additional interest not exceeding one per cent on deposits of Chairman and Managing Director and Executive Directors of the bank9 2.8Discretion to pay interest on current accounts maintained by Regional Rural Banks with sponsor banks10 2.9Discretion to pay interest on the minimum credit balance in the composite cash credit account of a farmer10 2.10Deposit Scheme for Senior Citizens10 2.11Premature withdrawal of term deposit10 2.12Conversi....
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....ot exceeding one percent on deposits of bank's staff and their exclusive associations 2.7 Discretion to pay additional interest on deposits of Chairman and Managing Director and Executive Directors of the bank 2.8 Discretion to pay interest on current account maintained by RRBs with sponsor bank 2.9 Discretion to pay interest on the minimum credit balance in the composite cash credit account of a farmer 2.10 Deposit Scheme for Senior Citizens 2.11 Premature withdrawal of term deposit 2.12 Conversion of term deposit, deposit in the form of daily deposit or recurring deposit for reinvestment in term deposit 2.13 Renewal of Overdue deposits 2.14 Advance against term deposit - Manner of charging interest 2.15 Margin on advance against term deposit 2.16 Restrictions on advances against NR(E)RA Deposits - Quantum of Loans 2.17 Interest payable on the deposit account of a deceased depositor 1 DBOD - MC on Interest Rates on Rupee Deposits Held in Domestic, NRO and NRE Accounts - 2009 2.18 Notifying RBI regarding change in interest on deposits and also the break- up of deposits according to different interest rate ranges 2.19 Addition or deletion of the name/s of joint accoun....
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....ounts can be maintained as current, saving, recurring or term deposits. While the principal of NRO deposits is non-repatriable, current income and interest earning is repatriable. Further NRI/PIO may remit an amount, not exceeding US $ 1 million per financial year, out of the balances held in NRO accounts/ sale proceeds of assets /the assets in India acquired by him by way of inheritance/legacy, on production of documentary evidence in support of acquisition, inheritance or legacy of assets by the remitter, and an undertaking by the remitter and certificate by a Chartered Accountant in the formats prescribed by the Central Board of Direct Taxes vide their Circular No. 10/2002 dated October 9, 2002. 1.3. Non-Resident (External) (NRE) Accounts The Non-Resident (External) Rupee Account NR(E)RA scheme, also known as the NRE scheme, was introduced in 1970. Any NRI can open an NRE account with funds remitted to India through a bank abroad. This is a repatriable account and transfer from another NRE account or FCNR(B) account is also permitted. A NRE rupee account may be opened as current, savings or term deposit. Local payments can be freely made from NRE accounts. Since this account i....
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....he terms and conditions specified in the paragraphs below. 2.1 Definitions For the purpose of this circular, (a) "Demand liabilities" and "Time liabilities" means the liabilities as shown in the return submitted by the bank under sub-section (2) of Section 42 of the Reserve Bank of India Act, 1934; (b) "Demand deposit" means a deposit received by the bank, which is withdrawable on demand; (c) "Savings deposit" means a form of demand deposit which is a deposit account whether designated as "Savings Account", "Savings Bank Account", "Savings Deposit Account" or other account by whatever name called which is subject to the restrictions as to the number of withdrawals as also the amounts of withdrawals permitted by the bank during any specified period; (d) "Term deposit" means a deposit received by the bank for a fixed period and which is withdrawable only after the expiry of the said fixed period and shall also include deposits such as Recurring/Cumulative/Annuity/Reinvestment deposits, Cash Certificates, and so on; (e) "Notice deposit" means term deposit for specific period but withdrawable on giving at least one complete banking day's notice; (f) "Current Account" means a f....
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....e minimum tenor of domestic/NRO term deposits below Rs. 15 lakh has been reduced from 15 days to 7 days. (ii) NRE deposits With effect from April 29, 2003, the minimum maturity period for NRE deposits has been raised from 6 months to 1 year, making the range of the maturity period for fresh NRE term deposits from one to three years, in line with FCNR(B) deposits. However, banks are allowed to accept NRE deposits above three years from their Asset-Liability point of view, provided the rate of interest on such long term deposits is not higher than that applicable to 3 year deposits. 2.2.B. Payment of interest (i) Banks should pay interest on savings deposits and term deposits, including NRE deposits, at the rates specified in Annex 1 and Annex 2 to this circular. A bank must obtain prior approval of its Board/Asset Liability Management Committee (if powers are delegated by the Board) for fixing interest rates of various maturities. (ii) Such interest should be paid at quarterly or longer rests. Interest on savings bank accounts should be credited on regular basis whether the account is operative or not. (iii) In the case of savings deposits, at present interest is calculated on....
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....ctice has been issued by IBA for uniform adoption by the Member Banks. The Code is intended to promote good banking practices by setting out minimum standards, which Member Banks should follow in their dealings with customers. IBA, for the purpose of calculation of interest on domestic term deposit, has prescribed that on deposits repayable in less than three months or where the terminal quarter is incomplete, interest should be paid proportionately for the actual number of days reckoning the year at 365 days. Some banks are adopting the method of reckoning the year at 366 days in a Leap year and 365 days in other years. While banks are free to adopt their methodology, they should provide information to their depositors about the manner of calculation of interest appropriately while accepting the deposits and display the same at their branches. If a Fixed Deposit Receipt matures and proceeds are unpaid, the amount left unclaimed with the bank will attract savings bank rate of interest. 2.4. Additional interest to Army Group Insurance Directorate (AGID), Naval Group Insurance Fund (NGIF) and Air-Force Group Insurance Society (AFGIS) A Public Sector Bank is permitted to pay additi....
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.... same period of deputation; (b) In the case of persons taken on deputation for a fixed duration, or on a contract of a fixed duration, the benefit will cease to accrue on the expiry of the term of deputation or contract, as the case may be. (ii) "A retired member of the bank's staff" means an employee retiring whether on superannuation or otherwise as provided in the bank's Service/Staff Regulations, but does not include an employee retired compulsorily or in consequence of disciplinary action; (iii) "Family" means and includes the spouse of the member/retired member of the bank's staff and the children, parents, brothers and sisters of the member/retired member of the bank's staff, who are dependent on such member/retired member, but does not include legally separated spouse; 2.6.3. Payment of additional interest is subject to the following conditions, namely: (i) The additional interest is payable only so long as the person continues to be eligible for the same and in case of his ceasing to be so eligible, till the maturity of a term deposit account; (ii) In the case of employees taken over pursuant to the scheme of amalgamation, the additional interest is allowed only if t....
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....d rates of interest as compared to normal deposits of any size. These schemes should also incorporate simplified procedures for automatic transfer of deposits to nominee of such depositors in the event of death. The above additional interest is not applicable to any type of non-resident deposits. (ii) In the case of a term deposit which is standing in the name of a HUF, the Karta of the HUF cannot be offered higher rate of interest, even if he is senior citizen, as the beneficial owner of the deposit is the HUF and not the Karta in his individual capacity. 2.11. Premature withdrawal of term deposit (i) A bank, on request from the depositor, should allow withdrawal of a term deposit before completion of the period of the deposit agreed upon at the time of making the deposit. The bank will have the freedom to determine its own penal interest rate of premature withdrawal of term deposits. The bank should ensure that the depositors are made aware of the applicable penal rate along with the deposit rate. While prematurely closing a deposit, interest on the deposit for the period that it has remained with the bank will be paid at the rate applicable to the period for which the deposit....
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....inal contract. 2.13. Renewal of Overdue deposits All aspects concerning renewal of overdue deposits may be decided by individual banks subject to their Board laying down a transparent policy in this regard and the customers being notified of the terms and conditions of renewal including interest rates, at the time of acceptance of deposit. The policy should be non-discretionary and non-discriminatory. 2.14. Advance against term deposit - Manner of charging interest (a) When an advance is granted against a term deposit and the deposit stands in the name of - (i) the borrower, either singly or jointly; (ii) one of the partners of a partnership firm and the advance is made to the said firm; (iii) the proprietor of a proprietary concern and the advance is made to such a concern; (iv) a ward whose guardian is competent to borrow on behalf of the ward and where the advance is made to the guardian of the ward in such a capacity; the bank would be free to charge interest rate without reference to its Benchmark Prime Lending Rate (BPLR) including advances granted against NRE term deposits and repaid in Foreign Currency or Rupees. If the term deposit against which an advance was gr....
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....( para 111), it has been decided to enhance the existing cap of Rs. 20 lakh to Rs. 100 lakh on loans against security of funds held in NR(E)RA and FCNR(B) deposits either to the depositors or third parties. Accordingly, banks should not grant fresh loans or renew existing loans in excess of Rupees hundred (100) lakh against NR(E)RA deposits, either to depositors or to third parties, with effect from April 28, 2009. Banks should not undertake artificial slicing of the loan amount to circumvent the ceiling. 2.17. Interest payable on the deposit account of deceased depositor (a) In the case of a term deposit standing in the name/s of (i) a deceased individual depositor, or (ii) two or more joint depositors, where one of the depositor has died, the criterion for payment of interest on matured deposits in the event of death of the depositor in the above cases has been left to the discretion of individual banks subject to their Board laying down a transparent policy in this regard. (b) In the case of balances lying in current account standing in the name of a deceased individual depositor/sole proprietorship concern, interest should be paid only from 1st May, 1983, or from the date....
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....heques/ drafts issued by clients containing fractions of a rupee are not rejected or dishonoured by them. Banks should also review the practice being followed by them in this regard and take necessary steps including through issue of internal circulars, etc, to ensure that the concerned staff are well versed with these instructions so that the general public does not suffer. Further, banks should ensure that appropriate action is taken against members of their staff who are found to have refused to accept cheques/ drafts containing fractions of a rupee. Any bank violating the aforesaid instructions would be liable to be penalised under the provisions of the Banking Regulation Act, 1949. 2.21. Issue of term deposit receipt A bank should issue term deposit receipt indicating therein full details, such as, date of issue, period of deposit, due date, applicable rate of interest, etc. 2.22. Payment of interest on term deposit maturing on Sunday/holiday/non-business working day In case of reinvestment deposits and recurring deposits, banks should pay interest for the intervening Sunday/holiday/non-business working day (as also Saturday in case of NRE deposits) on the maturity value. ....
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.... With a view to achieving the objective of greater financial inclusion, all banks should make available a basic banking 'no-frills' account either with 'nil' or very low minimum balances as well as charges that would make such accounts accessible to vast sections of population. The nature and number of transactions in such accounts could be restricted, but made known to the customer in advance in a transparent manner. All banks should give wide publicity to the facility of such 'no- frills' account including in the local media indicating the facilities and charges in a transparent manner. The efforts of banks have enabled the common person to open bank accounts. However, financial inclusion objectives would not be fully met if the banks do not increase the banking outreach to the remote corners of the country. This has to be done with affordable infrastructure and low operational costs with the use of appropriate technology. This would enable banks to lower the transaction costs to make small ticket transactions viable. A few banks have already initiated certain pilot projects in different remote parts of the country utilizing smart cards / mobile technology to extend banking serv....
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....ts of Rs.15 lakh and above. Banks should, therefore, offer the same rate of interest or different rates of interest for deposits of Rs.15 lakh and above. For deposits below Rs.15 lakh of the same maturity the same rate will apply. In this regard, it is clarified that it will not be in order for banks to offer higher/differential rate of interest, as compared to other deposits of similar tenure, on deposit schemes framed by them on the basis of the Bank Term Deposit Scheme, 2006, announced by Government of India vide their notification No. 203/2006 dated July 28, 2006. It will also not be in order for banks to offer higher/ differential rate of interest on deposits received under the Capital Gains Accounts Scheme, 1988. (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 should not be subject to negotiation between the depositor and the bank. (d) pay brokerage in the form of commission or gift or incentives on deposits in any manner or in any other form to any individual, firm, company, association, institution or an....
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....y the bank for the particular period. Simple rate of interest per annum for the period of deposit should be indicated invariably. (i) pay interest on margin money held in current account. (j) pay interest on "deposit at call" receipts issued by it to the tenderers (contractors) for submission to Government Departments/Semi-Quasi Government bodies, local bodies, etc. against the money held in current account. (k) accept interest-free deposit other than in current account or pay compensation indirectly. (l) accept deposits from/at the instance of private financiers or unincorporated bodies under any arrangement which provides for either issue of deposit receipt/s favouring client/s of private financiers or giving of an authority by power of attorney, nomination or other-wise, for such clients receiving such deposits on maturity. (m) grant advances against fixed deposit receipts or other term deposits of other banks. (n) (i) open a savings deposit account in the name of Government departments/bodies depending upon budgetary allocations for performance of their functions/Municipal Corporations or Municipal Committees/ Panchayat Samitis/State Housing Boards/Water and Sewerage/Dra....
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....ent maturity period. (d) With effect from 29.04.2003, the maturity period of fresh NRE deposits should normally be one year to three years. This will also apply to NRE deposits renewed after their present maturity period. In case, a particular bank, from its Asset Liability Management point of view, wishes to accept deposits with maturity of more than 3 years, it may do so provided the interest rate on such long term deposits is not higher than that applicable to 3 years NRE deposits. (e) For the purposes of operational convenience, the interest rates should be rounded off to the nearest two decimal points. For example, a computed interest rate of 3.676 per cent would become 3.68 per cent, and 3.644 per cent would become 3.64 per cent. (f) FEDAI quotes/displays the LIBOR/SWAP rates on the last working day of each month using a web page that can be accessed by all the subscribers to the Reuters Screen. The rates should be taken as the base rates for fixing ceiling on the interest rates that can be offered effective from the following month. ANNEX 3 List of organisations/bodies to which the prohibition contained in Clause 2.27(n)(i) of the directive will not be applicable (1) Prim....