Bank policies for payment of Interest on overdue deposits and unclaimed balance accounts

Edited and reposted on 02.07.2021:

The rate of interest payable by banks on overdue deposits differs depending upon the instances like renewal or non-renewal of the deposit for a minimum stipulated period, death of the depositor before the maturity of the deposit, death of the depositor after the maturity of the deposit, interest payable on the deposit amount left unclaimed after maturity and later claimed from unclaimed balance accounts, Interest payable on the balance available in the current account of a deceased depositor, rate of interest applicable when the bank alters interest rate before the overdue deposit is renewed, rate of interest applicable when a deposit is to be renewed after it remained overdue for more than 15 days, etc.

The ‘Boards’ of individual banks take their own decisions in all aspects concerning the renewal of overdue deposits, the rate of interest on deposits, etc. However; such policies framed by the banks are within the regulatory guiding principles of Reserve Bank. The customers at the time of acceptance of deposits being notified by the individual bank in this regard. Answers to Frequently Asked Questions are prepared based on broad guidelines issued by Reserve Bank to commercial banks from time to time and the model deposit policy of IBA.

Q: Whether an overdue deposit can be renewed with effect from the maturity date?

As per the IBA code for fair banking practice, a bank can renew the overdue domestic term deposit from the maturity date of the overdue deposit, provided such renewal shall be for a minimum period of 15 days. The request for renewal of the overdue deposit shall be received within 14 days from the date of maturity.

Q: Whether the overdue deposit is eligible for interest for the overdue period if it is not renewed?

A: If the overdue term deposit is not renewed interest will be paid at the prevailing Savings Bank rate for the overdue period, i.e. from the date of maturity of the deposit till the date of closure of the deposit.

Q: When a bank changes its interest rates on term deposits in between the maturity date and renewal date of a term deposit, which rate is applicable if the deposit is renewed subsequent to the revision of interest?

A:  When a term deposit is renewed within 14 days from the date of maturity, the overdue deposit can be renewed from the due date of deposit at interest applicable as on the maturity date of the deposit. In respect of overdue deposits renewed after 14 days from the date of maturity, interest payable will be the rate as applicable on the date of renewal.  If revised interest is more beneficial to the depositor he/she can opt for placing the deposit at a new rate on the date of renewal. In such cases, banks pay interest separately at a simple rate applicable for the broken period on the maturity date or date of renewal whichever is lower.

Q: What happens if the deposit is withdrawn before completion of the minimum stipulated period after the renewal of an overdue deposit?

A:  Banks have the freedom to determine the maturity/tenor of the deposit subject to the condition that the minimum tenor of the deposit offered shall be seven days. No interest shall be paid, where premature withdrawal of deposits takes place before completion of the minimum stipulated period. The requirement of the bank is to pay interest only at the rate applicable to the period for which the deposit remained with the bank (not at the contracted rate) beyond the date of maturity of the overdue deposit. Therefore, the bank is free to recover the interest if any so paid for the overdue period, in case the deposit is closed before completion of the minimum stipulated period after renewal.

Q: What is the rate of interest payable, if the depositor dies before the date of maturity but the amount of deposit is claimed after the date of maturity?

A: The claimant is eligible for the contracted rate of interest till the date of maturity of the deposit. Interest for the remaining period (from the date of maturity till the date of settlement) shall be paid at a simple rate applicable rate operative on the date of maturity.

Q: What is the rate of interest payable to the claimant in case of the depositor dies after the maturity date of the deposit?

A: Contracted rate of interest at the time of opening/renewal of the deposit shall be paid till the date of maturity of the deposit. Interest for the remaining period (from the date of maturity till the date of settlement of the claim), shall be paid at a simple rate of interest admissible for SB accounts.

Q: What is the rate of interest payable on overdue deposits transferred from ‘Unclaimed balance accounts’?

A: Interest to be paid at SB rate (Simple Interest) even if the deposit is not renewed.

Q: Is there any provision to pay interest to the claimant on the balance lying in a Current account of a deceased depositor?

The claimant is eligible for interest on balance lying in a Current A/c of deceased. Interest shall be paid at Savings Bank deposit rate from the date of death of the depositor, till the date of settlement of the death claim.

Q: What is the rate of interest payable for the deposit held in the name of a deceased depositor, if the claimant wants to close the deposit before the date of maturity of the deposit?

A: The nominee/survivor of a deceased depositor has two options. He/she can either continue the deposit till the maturity of the same or it can be closed before the maturity. If the deposit is closed before maturity, the bank is required to pay interest at the rate applicable to the period for which the deposit remained with the bank, without charging the penalty for premature closure of the deposit.

Q: What is the rate of interest payable for the unclaimed balances transferred to RBI’s Depositors Education and Awareness Fund (DEAF)?

A: If a Term Deposit matures and proceeds are unpaid, the amount left unclaimed with the bank shall attract a rate of interest as applicable to savings deposits. In case of deposits held in co-operative banks, if a Term Deposit (TD) matures and proceeds are unpaid, the amount left unclaimed with the co-operative bank shall attract a rate of interest as applicable to savings account or the contracted rate of interest on the matured TD, whichever is lower.

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