RBI has issued a master direction on payment of interest and levy of penalty on various deposits held in banks
Master Direction – Reserve Bank of India (Interest Rate on Deposits) Directions, 2025
The said Directions provide a framework for banks to follow while formulating their policies on Interest Rates on Deposits. The provisions of these Directions shall apply to all banks authorised to operate in India. However, these Directions shall not be applicable to operations of foreign branches of Indian banks.
The Important Highlights of the directions are as under:
There shall be a comprehensive policy on interest rates on deposits duly approved by the Board of Directors or any committee of the Board to which powers have been delegated and the rates shall not be subject to negotiation between the depositors and the bank.
Deposits maturing on non-business working day for commercial banks.
If a term deposit is maturing for payment on a non-business working day, banks shall pay interest at the originally contracted rate on the original principal deposit amount for the non-business working day, intervening between the date of the maturity of the specified term of the deposit and the date of payment of the proceeds of the deposit on the succeeding working day.
Interest payable on Current Account
No interest shall be paid on deposits held in current accounts. However, balances lying in current account standing in the name of a deceased individual depositor or sole proprietorship concern shall attract interest from the date of death of the depositor till the date of repayment to the claimant(s) at the rate of interest applicable to savings deposit as on the date of payment.
Interest Rate on Savings Deposit – differential rates for balance exceeding one lakh
Interest on domestic rupee savings deposit shall be calculated on a daily product basis by setting a uniform interest rate on balance up to Rupees one lakh, irrespective of the amount in the account within this limit. Differential rates of interest may be provided for any end-of-day savings bank balance exceeding Rupees one lakh.
Interest Rates on Domestic Term Deposits
The interest rates on term deposits shall vary only on account of tenor of deposit or size of deposit. Banks shall have the freedom to determine the maturity/ tenor of the deposit subject to the condition that minimum tenor of the deposit offered shall be seven days. Differential interest rate shall be offered only on bulk deposits.
Interest on Premature withdrawal
Banks shall have the freedom to offer term deposits without premature withdrawal option. However, all term deposits accepted by commercial banks from individuals (held singly or jointly) for amount of Rupees one crore and below shall have premature withdrawal facility.
Payment of interest on pre-mature withdrawal
In case of pre-mature withdrawal of term deposits, interest shall be paid at the rate applicable to the amount and period for which the deposit remained with the bank and not at the contracted rate. No interest shall be paid, where premature withdrawal of deposits takes place before completion of the minimum period of seven days.
Payment of Additional Interest on Domestic Deposits
Banks shall, at their discretion, allow additional interest of one per cent per annum, over and above the rate of interest mentioned in the schedule of interest rates on savings or a term deposits of bank’s staff and their exclusive associations as well as on deposits of Chairman, Chairman & Managing Director, Executive Director, etc. In case of employees taken over pursuant to the scheme of amalgamation, the additional interest is allowed only if the interest at the contractual rate together with the additional interest does not exceed the rate, which could have been allowed if such employees were originally employed by the bank.
Banks may also give their resident Indian retired staffs, who are senior citizens, the benefit of additional interest rates as admissible to senior citizens over and above the additional interest payable to them by virtue of their being retired members of the banks’ staff.
Periodicity of Payment of Interest on Savings Deposit
Interest on savings deposit shall be credited by commercial banks at quarterly or shorter intervals. Interest on savings deposit shall be credited by co-operative banks at quarterly or longer intervals. Interest on savings bank accounts, including those frozen by the enforcement
authorities, shall be credited on regular basis, irrespective of the operational status of the account.
Penalty on Premature Withdrawal of Domestic Term Deposit
There shall be a comprehensive policy on penalties for premature withdrawal of term deposits approved by the Board of Directors or any committee of the Board to which powers have been delegated.
The components of penalty shall be clearly brought to the notice of the depositors at the time of acceptance of deposits. If not, no penalty shall be levied.
In case of splitting of the amount of term deposit at the request from the claimant(s) of deceased depositors or joint account holders, no penalty for premature withdrawal of the term deposit shall be levied if the period and aggregate amount of the deposit do not undergo any change.
No penalty for premature withdrawal shall be levied, where depositors of the branch of a commercial bank desire premature withdrawal of deposit consequent to the transfer of business to another commercial bank.
Apart from domestic deposits, the Directions also contains comprehensive guidelines with respect to NRE/NRO Rupee deposits of Non Residents, Foreign Currency deposits under FCNR(B) Scheme.
Download RBI (Interest Rate on Deposits) Directions, 2025 Click Here >>
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