Saturday, August 1, 2015

INTEREST ON RUPEE DEPOSITS HELD IN NRO AND NRE ACCOUNTS



Guidelines
Commercial banks should pay interest on NRO and NRE accounts only on the terms and conditions mentioned hereunder.

Domestic Deposits
           A domestic rupee account may be opened as current, savings or term deposit.

Minimum tenor of Term Deposits   
        The minimum tenor of domestic term deposits is seven days

Interest Rates on Savings Deposit
Banks are free to determine their savings bank deposit interest rate, subject to:

(i)         Each bank will have to offer a uniform interest rate up to Rupees one lakh.
(ii)        Banks may provide differential rate of interest for balance exceeding Rupees one lakh but will not discriminate between deposits of similar amount, accepted on the same date, at any of its offices.

Calculation of Interest on Savings Deposits
Interest is to be calculated on a daily product basis.

Interest Rates on Term Deposits
Banks are free to fix their own interest rates on domestic term deposits. Banks are, however, not allowed to discriminate between deposits accepted on the same date and for the same maturity. Interest rates should not be subject to negotiations.

Banks are allowed to offer differential rate of interest on the basis of
(a) Tenor of Deposits  

(b) Size of Deposits: single term deposits of  1 crore and above.

(c) Availability of early withdrawal option
i.    All term deposits of individuals of 15 lakh and below should, necessarily, have premature withdrawal facility.
ii.    For deposits over 15 lakh, banks can offer deposit schemes without the option of premature withdrawal as well. However, customers are to be given the option to choose between term deposits with or without premature withdrawal facility.
iii.    Banks should disclose in advance the schedule of interest rates payable on deposits.
iv.    The banks should have a Board approved policy with regard to interest rates on deposits.

Calculation of Interest on Term Deposits
Banks are free to adopt any methodology for calculation of interest on deposits. If a Fixed Deposit Receipt matures, the amount left unclaimed with the bank will attract savings bank rate of interest.
Floating Rate Term Deposits
A bank may offer floating rate domestic term deposit clearly linked to an anchor rate. Only market-based rupee benchmark rates should be used for pricing the floating rate deposits.

Frequency of payment of interest on Savings and Term Deposits
Banks have the option to pay interest on savings deposit and term deposits at intervals shorter than quarterly intervals. Interest on savings bank accounts should be credited on regular basis whether the account is operative or not.

Payment of interest on accounts frozen by banks
In case of Term Deposit Accounts frozen by the orders of the enforcement authorities, following procedure is to be followed:
(i) A request letter for renewal may be obtained from the customer on maturity. In case the depositor does not choose the term for renewal, banks may renew it for a term equal to the original term.
(ii) A suitable note should be made regarding renewal in the deposit ledger.
(iii) Renewal of deposit should be conveyed to the concerned Government department under advice to the depositor with reference to the rate of interest paid thereon.
(iv) The deposit should be renewed from the date of maturity if the request is received within 14 days of maturity. For request received after 14 days of maturity, banks should pay interest for the overdue period as per the policy adopted by them, and keep it in a separate interest free sub-account, to be released when the original fixed deposit is released.
In case of savings bank accounts, banks should continue to credit interest on a regular basis.

Discretion to pay additional interest not exceeding one percent on deposits of bank’s staff and their exclusive associations
A bank may allow additional interest rate of one per cent per annum over card rate subject to following conditions:
(i)        In case of the depositor ceasing to be eligible, additional interest will be paid till the maturity of the deposit account;
(ii)           In case of mergers, the additional interest is allowed only if the card rate together with the additional interest does not exceed the rate, which could have been allowed if such employees were originally employed by the parent bank.

In respect of a savings or a term deposit account opened in the name of:
(a)          a member or a retired member of the bank’s staff, either singly or jointly with any member or members of his/her family; or
(b)          the spouse of a deceased member or a deceased retired member of  the bank’s staff; and
(c)          an  Association or a fund,  members of  which are  members of the bank’s staff;
The bank should obtain a declaration from the depositor, that the money deposited into such account belongs to him
For the purposes of the above para:
(i)         “a member of the bank’s staff” means a person employed on a regular basis, recruited on probation, employed on contract or deputation and an employee taken over in pursuance to amalgamation. It does not include a person employed on casual basis.
(a)  The bank from which an employee is deputed may allow additional interest on accounts opened with it during the same period of deputation;
(b)  In the case of fixed duration deputation or contract, the benefit will cease to accrue on the expiry of such duration.
(ii)        “A retired member of the bank’s staff” means a retired employee, but does not include an employee retired compulsorily or in consequence of disciplinary action;
(iii)       “Family” includes the spouse and dependent (children, parents, brothers and sisters). It does not include legally separated spouse;

Bank Employees’ Federations in which bank employees are not direct members are not eligible for additional interest.
In case of domestic deposits, banks may pay the benefit of higher interest rates as admissible to senior citizens over and above the additional interest as mentioned above to the retired members of the banks' staff.

Discretion to pay additional interest not exceeding one per cent on deposits of Chairman and Managing Director and Executive Directors of the bank: only during the period of their tenure.

Discretion to pay interest on current accounts maintained by Regional Rural Banks with sponsor banks:
  Banks may pay interest on the current accounts maintained by RRBs with them but they are encouraged not to do so.

Discretion to pay interest on the minimum credit balance in the composite cash credit account of a farmer
A bank may pay interest on the minimum credit balance during the period from the 10th to the last day of each calendar month.

Discretion to pay Additional interest to Army Group Insurance Directorate (AGID), Naval Group Insurance Fund (NGIF) and Air-Force Group Insurance Society (AFGIS)
A Public Sector Bank may pay additional interest of 1.28 per cent per annum over and above the normal rate of interest, only on the term deposits for two years and above, provided such deposits are not in any way linked with payment of insurance premia by the bank.

Deposit Scheme for Senior Citizens
(i)           Banks may offer higher rate of interest to resident Indian senior citizens. The scheme should allow automatic transfer of the deposit to the nominee in the event of death of the depositor.
(ii)           The Karta of the Hindu Undivided Family (HUF) cannot be offered higher rate of interest, even if he is a resident Indian senior citizen.

Prohibition on payment of additional interest rate on Term Deposits
Banks should not offer higher/differential rate of interest, as compared to other deposits of similar tenure. Banks should not offer higher/ differential rate on deposits received under the Capital Gains Accounts Scheme, 1988 too.

Penalty on premature withdrawal of term deposit
Banks are free to determine their own penal interest rate on premature withdrawal of term deposits. Interest will be paid at the rate applicable to the period the deposit actually remained with the bank. No interest is payable, where premature withdrawal of deposit takes place before completion of the minimum period prescribed.

Conversion of a term deposit, a deposit in the form of daily deposit or a recurring deposit for reinvestment in term deposit
A bank should allow the conversion of a daily deposit or recurring deposit account into another term deposit account.

Renewal of Overdue deposits
All aspects concerning renewal of overdue deposits may be decided by individual banks. 

Interest payable on the deposit account of deceased depositor
(a)     In the case of a term deposit standing in the name/s of
         (i) individual depositor, or
(ii) two or more joint depositors, where one of them has died,
The criterion for payment of interest on matured deposits, where the depositor has died, has been left to the discretion of individual banks.
(b)       In case of balances in current account of a deceased individual /sole proprietor, interest should be paid at the rate applicable to savings deposit as on the date of payment.
(c)        
Addition or deletion of the name/s of joint account holders
A bank shall allow the addition or deletion of names of joint account holders or allow an individual depositor to add the name of another person as a joint account holder. However, the amount or duration of the original deposit should not undergo a change.
A bank shall also allow the splitting up of the joint deposit, in the name of each of the joint account holders, provided the duration and the amount of deposit do not undergo any change.

Rounding off of transactions
All interest related transactions, should be rounded off to the nearest rupee. Issue prices of cash certificates should also be rounded off in the same manner.

Issue of term deposit receipt
(a) A bank should issue term deposit receipt indicating date of issue, period of deposit, due date, applicable rate of interest, etc.
(b) Issue of TDR/ FDR without a corresponding term will amount to violation of the extant guidelines on acceptance of deposits. The rate of interest payable on such deposits would be subject to the extant guidelines on ‘Interest Rates on Rupee Deposits’.

Payment of interest on term deposit maturing on Sunday/holiday/non-       business working day
Banks should pay interest at the contracted rate on the principal deposit for the holiday period if it happens to fall on the date of maturity, upon payment of the proceeds on the succeeding working day.
In case of reinvestment deposits, banks should pay interest for the intervening holiday on the maturity value.

Deposit Mobilisation Schemes
Before launching a new domestic deposit mobilisation scheme, banks should ensure that the provisions of RBI on interest rates, premature withdrawal, sanction of loans/advances against term deposits, etc., are strictly adhered to.

Special Term Deposit Products with Lock-in Period
Some banks were offering special term deposit products, ranging from 300 days to five years, with the following features:
                  i.        Lock-in periods ranging from 6 to 12 months;
                 ii.        In case of premature withdrawal during lock-in period, no interest is paid;
                iii.        Rates of interest are not in tune with the normal deposits;
                iv.        Part pre-payment is allowed, subject to certain conditions.
Banks have been advised to discontinue such schemes.

Advance against term deposit - Manner of charging interest
When an advance is granted against a term deposit and the deposit stands in the name of- 
           (i)    the borrower, either singly or jointly;
(ii)    one of the partners and the advance is made to his firm;
(iii)    the proprietor and the advance is made to his concern;
(iv)    a ward whose guardian is competent to borrow on his behalf and the advance is made in the capacity of a guardian;
Bank would be free to charge interest without reference to its Base Rate on advances granted against domestic/ NRE term deposits. 
If the term deposit against which an advance was granted is withdrawn before completion of the minimum maturity period, interest should be charged as per RBI’s directive on Interest Rates on Advances.

Margin on advance against term deposit
Margin on advance against term deposit is to be decided by individual banks.

Non-Resident (External) Rupee (NRE) Deposit / Ordinary Non-Resident (NRO) Deposits
An Authorised Dealer shall pay interest as per instructions given below:

Interest Rates on NRE/ NRO Deposits
Banks are free to determine their interest rates on both savings deposits and term deposits of maturity of one year and above under NRE Deposit accounts and savings deposit under NRO account . However, such interest rates cannot be higher than domestic rupee deposits.

Differential Rate of Interest on NRE/ NRO Term Deposits                       
Banks are allowed to offer differential rates on the basis of tenor and on the basis of quantum for single term deposits of  1 crore and above.

Maturity period of NRE/ NRO deposits
The minimum maturity period for NRE deposits is one year. Maximum Maturity period for fresh NRE term deposits is three years. However, banks are allowed to accept NRE deposits above three years, provided the rate of interest is not higher than that applicable to domestic deposits of comparable maturity.
Banks are free to accept term deposits of various maturities under the NRO scheme with the prior approval of their respective Board of Directors/Asset Liability Management Committee (ALCO). The minimum tenor of NRO term deposit is seven days.

Payment of interest on NRE/ NRO term deposit maturing on   Saturday/Sunday/holiday/non-business working day
Banks should pay interest at the contracted rate on the principal deposit for the holiday period if it happens to fall on the date of maturity, upon payment of the proceeds on the succeeding working day.
In case of reinvestment deposits, banks should pay interest for the intervening holiday on the maturity value.

Frequency of payment of interest on NRE/ NRO savings/ term deposits
Banks have the option to pay interest on savings deposit and term deposits at intervals shorter than quarterly intervals. Interest on savings bank accounts should be credited on regular basis whether the account is operative or not.

Renewal of Overdue NRE/ NRO deposits
All aspects concerning renewal of overdue deposits may be decided by individual banks

Marking of lien
Banks should not mark lien, direct or indirect, against NRE savings deposits.

Premature withdrawal of NRE deposits
Premature conversion of NRE term deposits into RFC Account will not attract penalty.  If the deposit is withdrawn for conversion before one year, the bank may pay interest at a rate not exceeding savings deposits rates held in RFC accounts, provided the request for such a conversion is made by the NRE account holder immediately on return to India.

Conversion of NRE deposits
Conversion of NRE deposit into FCNR(B) deposit and vice versa before maturity should be subject to the penal provisions.

Interest payable on the NRE deposit account of deceased depositor
  A deceased NRE deposit account should be treated as a domestic rupee deposit on maturity and interest should be paid for the subsequent period at a rate applicable to a domestic deposit of similar maturity.
                        
Prohibition on payment of additional interest on deposits of Senior Citizen
Banks are prohibited from payment of additional interest on Non-Resident deposits of Senior Citizens.

Prohibition on payment of additional interest not exceeding one percent on deposits of bank’s staff
Banks are not allowed to pay additional interest rate on deposits of non-residents.

Compliance with Foreign Exchange Management (Deposit) Regulations, 2000
As regards NRE / NRO deposit scheme, banks should adhere to the directions of Foreign Exchange Management (Deposit) Regulations, 2000.

Exemptions
The provisions in the above paragraphs will not apply to:
(i)            a deposit received by the bank:
(a)   from the institutions permitted to participate in the Call/Notice/Term Money Market both as lenders and borrowers;
(b)   for which it has issued a participation certificate;
(c)   under FCNR (B) Scheme, RFC and EEFC Accounts;
(d)   under the Capital Gains Accounts Scheme,; and
(e)   under the Certificate of Deposit Scheme.
(ii)           payment of interest on delayed collection of outstation instruments like cheques, drafts, bills, telegraphic/mail transfers, etc.

Prohibitions
No bank should -
(a)        pay interest on Current except for RRBs and deceased accounts as mentioned earlier;
(b)        pay countervailing interest on any current accounts maintained with it by its borrowers;
 (c)         pay brokerage on deposits to any individual, firm, company, association, institution or any other person except -
(i)         commission paid to agents employed to collect door-to-door deposits under a special scheme. The agreement with the Business Facilitators/ Correspondents should specifically prohibit them from charging any fee to the customers directly for services rendered by them on behalf of the bank.
(ii)        inexpensive gifts costing not more than Rupees two hundred fifty ; and
(iii)          incentives granted to staff members as approved by RBI.
(e)          Engage any individual for collection of deposit or selling deposit linked products on payment of remuneration, except to the extent permitted above.
(f)          launch prize oriented deposit mobilisation schemes.  .
(g)          resort to raising of resources through agents to meet the credit needs of the borrowers or to grant loans to the intermediaries.
(h)          solicit deposits from public highlighting only the compounded yield on term deposits and not the actual rate of simple interest for the particular period. 
(i)         pay interest on margin money held in current account.
(j)         pay interest on “deposit at call” receipts against money held in current account.
(k)        accept interest-free deposit other than in current account or pay compensation indirectly.
(l)         accept deposits from people at the instance of private financiers which entitles them to receive the deposits on maturity by way of POA, nomination etc.    
(m)      grant advances against term deposits of other banks.
(n)        (i)         open a savings deposit account in the name of Government departments/bodies depending upon budgetary allocations or any political party or any business or professional concern, whether such concern is a proprietary or a partnership firm or a company or an association.
 (ii)       The above prohibition will not apply in certain cases mentioned in annexures 2 of the master circular.
(o)          Creation of any fund to be utilized for charitable purposes in consultation with the depositors will not be in order.

Based on RBI master circular dated 1/7/15. Please refer www.rbi.org for further clarification if required………………….Poppy