What changed
Previously, interest on savings bank accounts was calculated on the minimum balance between the 10th and last day of each month. Now, from April 1, 2010, interest must be computed on the daily balance (daily product basis), as announced in the April 2009 Annual Policy Statement. The shift was enabled by satisfactory computerization levels in commercial bank branches.
What it means for you
Banks must update their core banking systems to calculate and credit interest daily, which may increase operational costs initially but aligns with depositor fairness. This change could slightly raise interest payouts for accounts with fluctuating balances, impacting net interest margins. Banks need to communicate the transition clearly to customers and ensure system readiness by the deadline.
What you must do
- Upgrade or configure core banking systems to compute savings interest on a daily product basis by April 1, 2010.
- Work out modalities for smooth transition, including testing and staff training, as advised by RBI.
- Communicate the new interest calculation method to customers through notices, statements, and digital channels.
- Coordinate with Indian Banks' Association and RBI on any implementation guidelines or clarifications.
Who it affects
All scheduled commercial banks (excluding RRBs), Savings bank account holders, Bank IT and operations teams, Deposit operations and product management departments
What is the daily product basis for savings interest?
Interest is calculated on the actual daily balance in the account, summed over the month, and then paid at the applicable rate. This replaces the old method of using the minimum balance between the 10th and last day of the month.
When does this change take effect?
The new calculation method is effective from April 1, 2010, as announced in the RBI Annual Policy Statement on April 21, 2009.
Why did RBI make this change?
RBI cited satisfactory computerization in commercial bank branches, making daily calculation feasible. The change addresses suggestions from banks and the Indian Banks' Association to move to a fairer method.