Page 58 - DMGT303_BANKING_AND_INSURANCE

Unit 3: Concept of Retail Banking

Rate of Interest: Banks may offer differential interest rates on whole sale domestic term deposits Notes
of Rs. 15 lakhs and above. For deposits below Rs. 15 lakhs, banks should offer uniform rates for
the same maturity.
On domestic term deposits, banks may offer floating rate clearly linked to an anchor rate. Banks
to obtain prior approval of its Board or ALM Committee (if powers are delegated to the committee)
for fixing rates for various maturities. Unlike Savings Fund Account wherein rate of interest is
arbitrated by RBI, in respect of term deposits RBI has vested enough powers to decide upon the
rate of interest for deposits of various maturities as above.
Banks are to pay interest at the originally contracted rate on the deposit amount for Sunday/
holiday/non-business working day intervening between the date of expiry of specified term
deposit and date of payment of proceeds.

Interest Payable on Deposit Account of Deceased Depositor

According to Reserve Bank of India’s guidelines, individual banks can decide upon this issue.
However Indian Bank’s Association (IBA) in its model deposit policy has laid down that:
1. In case of death before maturity, contracted rate be paid till the date of maturity and from
the date of maturity till the date of payment, simple interest at the rate applicable (term
deposit) on the date of maturity for the period the deposit remained with the bank be paid.
2. In case of death after maturity, the bank shall pay interest at savings rate applicable on the
date of maturity, from date of maturity till the date of payment.
Banks cannot accept interest-free deposit, except for deposit at call; for instance money held in
current account of the depositor does not bear any interest.

Banks should not discriminate in matter of interest paid on deposit, except for resident senior
citizens and other segments as and when notified by the government.
Individual banks have laid down guidelines in respect of renewal of deposit including, premature
renewal, premature withdrawal conversion of term deposit into recurring deposit and vice
versa. Banks also have put in place guidelines for splitting of deposits into different names as
per the instructions of the customer. Banks have also brought in novel schemes of loans/advances
against term deposits.

3.7 Recurring Deposits

Any individual (singly or jointly) or a minor of 10 years and above in his own name otherwise
under guardianship, HUF, a firm, a club, association, educational institution, municipality,
Panchayat, society, trust etc. can open the account.
As per the practices followed by the banks by and large, it can be opened for an installment of
Rs.100/- or more or in multiples thereof for a period ranging from 6 months to 120 months in
multiples of 3 months. Since this is a de-regulated area, the scheme of one bank need not be the
same with that of the other.

Interest: Interest again is deregulated by RBI and as such, rate of interest offered by one bank for
the like amount and period may not be the same with that of the other. In normal recurring
deposit, installments are expected to be deposited by the deposit holder on or before the last
working day of the month. But in respect of the recurring deposit scheme where there is no
stipulation of payment on or before the last working day of the month, the question of fixing
any date does not arise. Banks have put in place penalty guidelines in respect of non-payment of
installment in time and waiver procedures have also been laid down by the banks.

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