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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.... Manager-in-Charge Click here to download Master Circular ============= Document 1 CONTENTS Para No Particulars Page No. A Purpose 1 B Classification 1 C Previous instructions 1 D Application 1 1. Introduction 3 1.1 Domestic Deposits 3 1.2 Ordinary Non-Resident (NRO) 3 1.3 Non-Resident (External) (NRE) Accounts 3 1.4 Interest Rate Regulation 4 2. Guidelines 4 2.1 Definitions 4 2.2 Minimum tenor and rates of interest payable on Savings deposits and on Term deposits 6 2.3 Payment of interest on fixed deposit - Method of calculation of interest 7 2.4 Additional interest to Army Group Insurance Directorate, etc. 8 2.5 Discretion to Regional Rural Banks / Local Area Banks to pay additional interest 8 2.6 Discretion to pay additional interest not exceeding one percent on deposits of bank's staff and their exclusive associations 8 2.7 Discretion to pay additional interest not exceeding one per cent on deposits of Chairman and Managing Director and Executive Directors of the bank 9 2.8 Discretion to pay interest on current accounts maintained by Regional Rural Banks with sponsor banks 10 2.9 Discretion to pay int....
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....tenor and rates of interest payable on Savings deposits and on Term deposits. 2.3 Payment of interest on fixed deposit - Method of calculation of interest 2.4 Additional interest to AGID, NGIF and AFGIS 2.5 Discretion to Regional Rural Bank/Local Area Bank to pay additional interest 2.6 Discretion to pay additional interest not 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 ....
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....(NRO) NRIs can open Non-Resident Ordinary (NRO) deposit accounts for collecting their funds from local bona fide transactions. NRO accounts being Rupee accounts, the exchange rate risk on such deposits is borne by the depositors themselves. When a resident becomes a NRI, his existing Rupee accounts are designated as NRO. Such accounts also serve the requirements of foreign nationals resident in India. NRO accounts 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)....
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....business in India on November 17, 2005, the interest rates on NRE saving deposits are the same as applicable to domestic savings deposits. 2. GUIDELINES Commercial banks should not pay interest on deposits of money accepted or renewed by them in Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) Accounts (NRE) except in accordance with the rates specified in the Annex 1 and 2 hereto, as applicable, and on the 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 per....
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.... and rates of interest payable on Savings deposits and on Term deposits 2.2.A. Minimum tenor (i) Domestic/ NRO term deposits The minimum tenor of domestic/ NRO term deposits is 7 days. Prior to November 1, 2004, banks were permitted to accept term deposits of Rs. 15 lakh and above for a minimum maturity period of 7 days and, in case of term deposits of less than Rs. 15 lakh, the minimum maturity period was 15 days. With effect from November 1, 2004, the 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 sp....
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....erest for the overdue period as per the policy adopted by them, and keep it in a separate interest free sub-account which should be released when the original fixed deposit is released. Further, with regard to the savings bank accounts frozen by the enforcement authorities, banks should continue to credit the interest to the account on a regular basis. 2.3. Payment of interest on fixed deposit - Method of calculation of interest The Indian Banks' Association (IBA) Code for Banking Practice 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 i....
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....aff" means a person employed on a regular basis, whether full-time or part-time, and includes a person recruited on probation or employed on a contract of a specified duration or on deputation and an employee taken over in pursuance of any scheme of amalgamation, but does not include a person employed on casual basis. (a) In the case of employees taken on deputation from another bank, the bank from which they are deputed may allow additional interest in respect of the savings or term deposit account opened with it during the 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/re....
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....inimum credit balance in the composite cash credit account of a farmer 2.9. A bank may, at its discretion, pay interest at a rate based on its perception and other relevant factors on the minimum credit balance in the composite cash credit account of a farmer during the period from the 10th to the last day of each calendar month. 2.10. Deposit Scheme for Senior Citizens (i) Banks have been permitted to formulate, with the approval of their Boards of Directors, fixed deposit schemes specifically for resident Indian senior citizens offering higher and fixed 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....
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....nk, on a request from the depositor, should allow conversion of a term deposit, a deposit in the form of daily deposit or recurring deposit, to enable the depositor to immediately reinvest the amount lying in the aforesaid deposits with the same bank in another term deposit. The bank should pay interest in respect of such a term deposit in the manner indicated in paragraph 2.11 above without reducing the interest by way of penalty as stated in the said paragraph provided that the deposit remains with the bank after reinvestment for a period longer than the remaining period of the original 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 singl....
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.... of Annual Statement on Monetary Policy for the Year 2006-07 (para 86), had observed that keeping in view the objective of making these facilities available to individual Non-Resident Indians (NRIs) and considering the prevailing monetary conditions, there is merit in avoiding upward pressure on asset prices in sensitive sectors through utilisation of this facility. Therefore, banks were prohibited from granting fresh loans or renewing existing loans in excess of Rupees twenty (20) lakh against NR(E)RA and FCNR(B) deposits either to the depositors or third parties. As announced in the Annual Policy Statement 2009-10 ( 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 d....
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....nge. Note: NRE deposits should be held jointly with non-residents only. NRO accounts may be held by non-residents jointly with residents. 2.20. Rounding off of transactions All transactions, including payment of interest on deposits/charging of interest on advances, should be rounded off to the nearest rupee; i.e., fractions of 50 paise and above shall be rounded off to the next higher rupee and fraction of less than 50 paise shall be ignored. Issue prices of cash certificates should also be rounded off in the same manner. In the light of a judgement of the High Court of Gujarat, Ahmedabad, banks were advised that they should ensure that cheques/ 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 fra....
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....posit schemes were, advised to discontinue the schemes. 2.24. Minimum balance in savings bank accounts At the time of opening the accounts, banks should inform their customers in a transparent manner the requirement of maintaining minimum balance and levying of charges etc., if the minimum balance is not maintained. Any charge levied subsequently should be transparently made known to all depositors in advance with one month's notice. The banks should inform, at least one month in advance, the existing account holders any change in the prescribed minimum balance and the charges that may be levied if the prescribed minimum balance is not maintained. 2.25. 'No-frills' account 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 inc....
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....interest paid on deposits, between one deposit and another, accepted on the same date and for the same maturity, whether such deposits are accepted at the same office or at different offices of the bank, except in respect of fixed deposit schemes specifically for resident Indian senior citizens offering higher and fixed rates of interest as compared to normal deposits of any size, and single term deposits of Rs.15 lakh and above on which varying rates of interest may be permitted on the basis of size of deposits. The permission to offer varying rates of interest is subject to the following conditions: (i) The permission to offer varying rates of interest for deposits of the same maturity applies to single term deposits 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 S....
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....s costing not more than Rs. 250/-, as such products involve non-transparency in the pricing mechanism and therefore go against the spirit of the guidelines. Such products, if offered, by banks would be considered as violation of the extant guidelines and the banks concerned would be liable for penal action. (g) resort to unethical practices of raising of resources through agents/third parties to meet the credit needs of the existing/prospective borrowers or to grant loans to the intermediaries based on the consideration of deposit mobilisation. (h) issue any advertisement/literature soliciting deposits from public highlighting only the compounded yield on term deposits without indicating the actual rate of simple interest offered by 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....
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....estic savings deposits instead of the LIBOR/SWAP rate for six months maturity on US dollar deposits. (iii) Term Deposits (a) With effect from the close of business in India on November 15, 2008, interest rates on NRE deposits for one to three years should not exceed the LIBOR/SWAP rates plus 175 basis points, as on the last working day of the previous month, for US dollar of corresponding maturities (as against LIBOR / SWAP rates plus 100 basis points effective from close of business on October 15, 2008). (b) The LIBOR/SWAP rates as on the last working day of the preceding month would form the base for fixing ceiling rates for the interest rates that would be offered effective from the following month. (c) The above changes in interest rates will also apply to repatriable NRE deposits renewed after their present 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,....