What changed
Previously, unpaid matured term deposits earned interest at the savings deposit rate. The new rule allows banks to pay either the savings account rate or the contracted rate on the matured TD, whichever is lower.
What it means for you
Banks must now pay interest on overdue term deposits at the lower of the savings account rate or the contracted rate. This may reduce interest costs for banks if the contracted rate is lower than the savings rate, but could also mean customers receive less than before if their contracted rate is below savings rate. The change offers no flexibility to pay a higher rate; it mandates the lower rate.
What you must do
- Update your system logic for overdue term deposit interest calculation to compare savings rate and contracted rate, applying the lower of the two.
- Amend relevant internal policies and customer-facing terms to reflect the new rule.
- Train staff on the revised interest computation for matured but unclaimed deposits.
- Ensure compliance with the amended Master Directions for both commercial and co-operative banks.
Who it affects
All Scheduled Commercial Banks including RRBs, Small Finance Banks, Local Area Banks, Primary (Urban) Co-operative Banks, District Central Co-operative Banks, State Co-operative Banks
What is the effective date of this change?
The circular is dated July 2, 2021. The source does not specify an explicit effective date beyond the date of the circular.
Does this apply to all types of term deposits?
Yes, it applies to all domestic term deposits that mature and remain unpaid.
How does this affect customers with overdue deposits?
Customers will now receive interest at the lower of the savings account rate or their original contracted rate, which could be lower than the previous savings-only rate if their contracted rate is below savings rate.