The Reserve Bank of India has been issuing statutory guidelines to commercial banks under the Banking Regulation Act 1949. The banks in India accordingly shall follow the terms and conditions as specified in the regulations in respect of deposits accepted by the banks. The detailed guidelines of the banking regulator cover the following matters.
- Minimum tenor and rates of interest payable on Savings Deposits and Term Deposits
- Payment of interest on fixed deposit – Method of calculation of interest
- Additional interest to Army Group Insurance Directorate (AGID), Naval Group Insurance Fund (NGIF) and Air-Force Group Insurance Society (AFGIS)
- Discretion to pay additional interest not exceeding one percent on deposits of the bank’s staff and their exclusive associations
- Discretion to pay additional interest not exceeding one per cent on deposits of Chairman and Managing Director and Executive Directors of the bank
- Discretion to pay interest on current accounts maintained by Regional Rural Banks with sponsor banks
- Discretion to pay interest on the minimum credit balance in the composite cash credit account of a farmer
- Deposit Scheme for Senior Citizens
- Premature withdrawal of term deposit
- Conversion of a term deposit, a deposit in the form of a daily deposit, or a recurring deposit for reinvestment in a term deposit
- Renewal of Overdue deposits
- Advance against term deposit – Manner of charging interest
- Margin on advance against term deposit
- Restrictions on advances against NR(E)RA Deposits – Quantum of loans
- Interest payable on the deposit account of deceased depositor
- Notifying RBI regarding changes in interest on deposits and also the break-up of deposits according to different interest rate ranges
- Addition or deletion of the name/s of joint account holders
- Rounding off of transactions
- Issue of the term deposit receipt
- Payment of interest on term deposit maturing on Sunday/holiday/non-business working day
- A Deposit Mobilisation Schemes
- Special Term Deposit Products with Lock-in Period
- Minimum balance in savings bank accounts
- ‘No-frills’ account
Exemptions
The provisions in the above paragraphs will not apply to:
(i) a deposit received by the bank from the institutions permitted to participate in the Call/Notice/Term Money Market both as lenders and borrowers, namely, all Scheduled Commercial Banks (excluding RRBs), Co-operative Banks, and Primary Dealers; (i) for which it has issued a participation certificate; (ii) under Foreign Currency (Non-Resident) Accounts (Banks) Scheme, Resident Foreign Currency Account and Exchange Earners Foreign Currency Accounts;(iii) under the Capital Gains Accounts Scheme, 1988, framed by the Government of India in pursuance of sub-section (2) of Section 54, sub-section (2) of Section 54B, sub-section (2) of Section 54D, sub-section (4) of Section 54F and sub-section (2) of Section 54G of the Income-Tax Act, 1961; and (iv) under the Certificate of Deposit Scheme and payment of interest on delayed collection of outstation instruments like cheques, drafts, bills, telegraphic/mail transfers, etc.
Prohibition:
No bank should;
- pay interest on Current Account except discretion to pay interest on current accounts maintained by Regional Rural Banks with sponsor banks (point No.6 above) and Interest payable on the deposit account of the deceased depositor (Point no.15 above);
- pay countervailing interest on any current accounts maintained with it by its borrowers;
- discriminate in the matter of 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 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 Rupees fifteen lakh and above on which varying rates of interest may be permitted based on 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 Rupees fifteen lakh and above. Banks should, therefore, offer the same rate of interest or different rates of interest for deposits of Rupees fifteen lakh and above. For deposits below Rupees fifteen lakh of the same maturity, the same rate will apply. In this regard, it is clarified that it will not be for banks to offer higher/differential rates of interest, as compared to other deposits of similar tenure, on deposit schemes framed by them based on 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 for banks to offer higher/ differential rates 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.
- pay brokerage in the form of commission gift or incentives on deposits in any manner or any other form to any individual, firm, company, association, institution, or any other person except; (i) Commission paid to agents employed to collect door-to-door deposits under a special scheme. Banks have also been permitted to use the services of Non-Governmental Organisations(NGOs)/ Self Help Groups(SHGs)/ Micro Finance Institutions(MFIs) and other Civil Society Organisations(CSOs) as intermediaries in providing financial and banking services including collection of deposits through the use of the Business Facilitator and Business Correspondent models. Banks may pay reasonable commission/ fee to the Business facilitators/ Correspondents, the rate and quantum of which may be reviewed periodically. The agreement with the Business facilitators/ Correspondents should specifically prohibit them from charging any fee to the customers directly for services rendered by them on behalf of the bank. (i)inexpensive gifts costing not more than Rupees two hundred fifty; and (ii)Incentives granted to staff members as approved by the Reserve Bank of India from time to time. (iii) employ/ engage any individual, firm, company, association, institution, or any other person for collection of deposit or for selling any other deposit-linked products on payment of remuneration or fees or commission in any form or manner, except to the extent exempted above.
- Launch prize/lottery/free trips (in India and/or abroad), etc. oriented deposit mobilisation schemes. It is clarified that banks should not offer any banking products, including online remittance schemes, with prizes /lottery/free trips (in India and/or abroad), etc., or any other incentives having an element of chance, except inexpensive gifts costing not more than Rupees two hundred fifty only, 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 a violation of the extant guidelines, and the banks concerned would be liable for penal action.
- resort to unethical practices of raising 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.
- issue any advertisement/literature soliciting deposits from the 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. A simple rate of interest per annum for the deposit period should be indicated invariably.
- pay interest on margin money held in the current account.
- 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 the current account.
- accept interest-free deposits other than in the current account or pay compensation indirectly.
- 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 authority by the power of attorney, nomination or otherwise, for such clients receiving such deposits on maturity.
- Grant advances against fixed deposit receipts or other term deposits of other banks.
- 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/Drainage Boards/State Text Book Publishing Corporations/ Societies/Metropolitan Development Authority / State/ District Level Housing Co-operative Societies, etc. or any political party or any trading/business or professional concern, whether such concern is a proprietary or a partnership firm or a company or an association.
The prohibition of opening SB accounts as stated above does not apply to
(1)Primary Co-operative Credit Society which is being financed by the bank.
(2) Khadi and Village Industries Boards.
(3) Societies registered under the Societies Registration Act, 1860 or any other corresponding law in force in a State or a Union Territory except societies registered under the State Co-operative Societies Acts and specific state enactment creating Land Mortgage Banks.
(4) Companies governed by the Companies Act, 1956 which have been licensed by the Central Government under Section 25 of the said Act, or the corresponding provision in the Indian Companies Act, 1913 and permitted, not to add to their names the words ‘Limited’ or the words ‘Private Limited’.
(5) Institutions mentioned above and whose entire income is exempt from payment of income tax under the Income Tax Act, 1961.
(6) Government departments/bodies/agencies regarding grants/ subsidies released for implementation of various programmes / Schemes sponsored by Central Government / State Governments subject to the production of authorization from the respective Central / State Government departments to open savings bank accounts.
(7) Development of Women and Children in Rural Areas (DWCRA).
(8) Self-help Groups (SHGs), registered or unregistered, which are engaged in promoting savings habits among their members.
(9) Farmers’ Clubs – Vikas Volunteer Vahini – VVV.
Prohibition on marking lien: Scheduled Commercial Banks shall not mark any type of lien, direct or indirect, against NRE saving deposits.
Source: RBI master circular relating to Interest Rates on Rupee Deposits held in Domestic, Ordinary Non-Resident (NRO), and Non-Resident (External) (NRE) Accounts.
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