What changed
Previously, banks compensated investors at the current Savings Bank Rate for delays in bond payments. With savings deposit rates now deregulated, banks must use their own savings deposit rate for the respective amount slabs (up to ₹1 lakh and over ₹1 lakh) without discrimination.
What it means for you
Banks have flexibility to set compensation rates based on their own savings deposit rates, which may vary by amount slab. This aligns compensation with actual deposit costs but requires banks to ensure no discriminatory treatment between investors. Lenders must update their systems and processes to apply the correct rate for each delay.
What you must do
- Update internal policies to use your bank's savings deposit rate for compensating bond investors on delayed payments.
- Ensure compensation is calculated separately for amounts up to ₹1 lakh and over ₹1 lakh, using the respective savings deposit rates.
- Train staff handling bond transactions on the new compensation calculation method.
- Review and amend any existing agreements or circulars that reference the old uniform Savings Bank Rate.
Who it affects
Banks handling Relief/Savings Bonds (SBI, associate banks, public sector banks, IDBI, ICICI, Axis, HDFC, SHCIL), Investors in Relief/Savings Bonds, Government accounts departments of listed banks
What rate should we use for compensation if our savings deposit rate differs for amounts above ₹1 lakh?
Use your bank's savings deposit rate applicable to the specific amount slab of the delayed payment—up to ₹1 lakh and over ₹1 lakh—without any discrimination between investors.
Does this circular apply to all types of bonds or only Relief/Savings Bonds?
It specifically applies to Relief/Savings Bonds as referenced in the earlier circular of May 2005, and the compensation requirement is for delays in interest warrants or maturity value payments.
What if our bank has multiple savings deposit rates for the same slab?
You must apply a single, non-discriminatory rate for each slab (up to ₹1 lakh and over ₹1 lakh) to all investors, as per the circular's instruction.