What changed
RBI mandated that interest on savings bank accounts be calculated on a daily product basis effective April 1, 2010. This follows an earlier circular from April 24, 2009, which proposed the change and asked banks to prepare for a smooth transition.
What it means for you
Banks must update their core banking systems to compute interest daily based on the end-of-day balance, rather than the monthly minimum balance. This benefits depositors by crediting interest for every day funds remain in the account, potentially increasing interest payouts. Banks may see a slight rise in interest expenses and need to ensure accurate daily calculation and reporting.
What you must do
- Ensure IT systems are configured to calculate savings bank interest on a daily product basis from April 1, 2010.
- Communicate the change to all branches and relevant departments for smooth implementation.
- Review and update internal guidelines and customer communications to reflect the new interest calculation method.
- Test daily product calculations in a pilot branch before full rollout to avoid errors.
Who it affects
All scheduled commercial banks (excluding RRBs), Depositors with savings bank accounts, Bank IT and operations teams
What is the daily product basis for interest calculation?
Interest is calculated on the end-of-day balance for each day, summed over the month, and paid at the applicable rate. This replaces the earlier method based on the minimum balance maintained during the month.
When does this change take effect?
The circular mandates implementation from April 1, 2010. Banks were advised earlier in April 2009 to prepare for this transition.
Does this apply to Regional Rural Banks (RRBs)?
No, the circular explicitly excludes RRBs. It applies only to scheduled commercial banks.