What changed
RBI clarified that the October 2011 deregulation guidelines apply solely to domestic savings deposits held by residents in India. Interest calculation must now use end-of-day balances: a uniform rate for balances up to Rs. 1 lakh, and banks may set differential rates for balances exceeding Rs. 1 lakh. Banks must obtain prior approval from their Board or delegated ALCO for fixing these rates.
What it means for you
Banks must update their core banking systems to compute interest on savings accounts based on daily end-of-day balances, not minimum balances or other methods. This allows tiered pricing for high-value deposits above Rs. 1 lakh, enabling competitive differentiation. Compliance requires board-level oversight and uniform application across all branches without discrimination.
What you must do
- Ensure interest on domestic savings deposits is calculated on end-of-day balances as per the uniform rate for up to Rs. 1 lakh and differential rates above that.
- Obtain prior Board or ALCO approval for the interest rates set on savings deposits.
- Apply the same interest rate methodology uniformly across all branches and offices without discrimination.
- Update system parameters and staff training to reflect the end-of-day balance calculation method.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Retail banking operations handling domestic savings accounts, Treasury and ALCO teams responsible for deposit pricing, IT and operations teams managing core banking systems
Does this circular apply to NRI savings accounts?
No, the guidelines are specifically for domestic savings bank deposits held by residents in India. NRI accounts are not covered.
Can we offer different interest rates for balances above Rs. 1 lakh?
Yes, banks may apply differential rates for end-of-day balances exceeding Rs. 1 lakh, but must obtain prior Board or ALCO approval.
Is the uniform rate for up to Rs. 1 lakh mandatory?
Yes, banks must apply a uniform rate on the entire balance up to Rs. 1 lakh. Differential rates are only permitted for the portion above Rs. 1 lakh.