What changed
RBI directed UCBs to shift from the earlier method of calculating savings account interest to a daily product basis, effective April 1, 2010. This follows a prior circular from September 1, 2009, which asked banks to prepare infrastructure for the transition.
What it means for you
UCBs must now compute interest on savings accounts based on the actual daily balance, which could increase interest payouts for customers with fluctuating balances. Banks need to update their core banking systems and ensure accurate daily calculations to comply. This aligns UCBs with commercial banks' practice, potentially impacting their net interest margins.
What you must do
- Ensure your CBS or accounting software can calculate interest on a daily product basis by March 31, 2010.
- Train staff on the new calculation method and communicate the change to customers.
- Review and update internal policies and interest payment processes for savings accounts.
- Test the new system thoroughly before the April 1, 2010 deadline.
Who it affects
All Primary Urban Cooperative Banks (UCBs), IT and operations teams at UCBs, Savings account customers of UCBs
What is the daily product basis for interest calculation?
Interest is calculated on the actual daily balance in the savings account, rather than the minimum balance during a month. This means customers earn interest for each day's balance.
When does this change take effect?
The circular mandates implementation from April 1, 2010. Banks were given time since September 2009 to prepare their systems.
Does this apply to all types of savings accounts?
The circular applies to all savings bank accounts at Primary Urban Cooperative Banks, as per the directive.