July 31, 2002
Shravana 9,1924(Saka)

All Commercial Banks
(Excluding Regional Rural Banks and Local Area Banks)

Dear Sirs,

As you are aware Reserve Bank of India has issued Master Directive on Interest Rates on Rupee Deposits held in Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts vide DBOD No. Dir.BC. 07/13.03.00/2001-02 dated August 11, 2001. Certain amendments have also been made thereto from time to time. In order to enable the banks to have all existing instructions on the subject at one place a Master Circular has been prepared by incorporating the instructions issued upto 30 June 2002 and has been placed on the RBI website (http://www.rbi.org.in).

2. It may be noted that the instructions contained in the directives/circulars listed in Annexure VI have been incorporated in the Master Circular.

Yours faithfully,

Commercial banks should not pay interest on deposits of money accepted by it or renewed by it in Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) Accounts (NRE) except in accordance with the rates as specified in the Annexures I and II hereto, whichever is applicable, and on the terms and conditions specified in the paragraphs below:

For the purpose of this circular,

Note: NRO/NRE deposits can be accepted only by banks, which are authorised by Reserve Bank to accept such deposits.

A Public Sector Bank is permitted to pay additional interest of 1.28 per cent per annum over and above the normal rate of interest permissible in terms of directives on interest rates on deposits issued by Reserve Bank of India, from time to time, on term deposits for 2 years and above of Army Group Insurance Directorate (AGID), Naval Group Insurance Fund (NGIF) and Air-Force Group Insurance Society (AFGIS) only, provided such deposits are not in any way linked with payment of insurance premia by the bank.

A Regional Rural Bank/Local Area Bank may, at its discretion, allow additional interest of half per cent per annum on savings deposits.

A bank may, at its discretion, allow additional interest at a rate not exceeding one per cent per annum over and above the rate of interest stipulated in the Annexures I & II to this circular subject to following conditions:

(1) in respect of a savings or a term deposit account opened in the name of:

1. 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
2. the spouse of a deceased member or a deceased retired member of the bank’s staff; and
3. an Association or a fund, members of which are the members of the bank’s staff;

A bank should obtain a declaration from the depositor concerned, that the monies deposited or which may, from time to time, be deposited into such account belong to the depositor as stated in clauses (a) to (c) above.

(2) For the purposes of sub-paragraph (1) -

(3) Payment of additional interest will be subject to the following conditions, namely:

(4) Bank Employees’ Federations in which bank employees are not direct members will not be eligible for additional interest.

A bank may, at its discretion, pay additional interest not exceeding one per cent per annum over and above the rate of interest stipulated in the Annexures I & II to this circular on deposits accepted/renewed from Chairman, Chairman & Managing Director, Executive Director or such other Executive appointed for a fixed tenure and are not eligible to get the similar benefit under paragraph 5 above, only during the period of their tenure.

A bank may pay interest on current account of a Regional Rural Bank sponsored by it at such rates as may be mutually agreed to.

A bank may, at its discretion, pay interest at a rate based on its perception and other relevant factors on the minimum credit balance in the composite cash credit account of a farmer during the period from the 10^th to the last day of each calendar month.

1. A bank, on request from the depositor, should allow withdrawal of a term deposit before completion of the period of the deposit agreed upon at the time of making the deposit. The bank will have the freedom to determine its own penal interest rate of premature withdrawal of term deposits. The bank willl ensure that the depositors are made aware of the applicable penal rate along with the deposit rate. However, the bank, at its discretion, may disallow premature withdrawal of large deposits held by entities other than individuals and Hindu Undivided Families. Bank should, however, notify such depositors of its policy of disallowing premature withdrawal in advance, i.e., at the time of accepting such deposits.
2. In the case of premature withdrawal of NRE term deposit for conversion into Resident Foreign Currency (RFC) Account, the bank should not levy any penalty for premature withdrawal. If such a deposit has not run for a minimum period of 6 months, the bank may, at its discretion, pay interest at a rate not exceeding the rate payable on savings deposits held in RFC accounts, provided request for such a conversion is made by NRE account holder immediately on return to India.
3. Conversion of NRE deposit into FCNR(B) deposit and vice versa before maturity should be subject to the penal provision relating to premature withdrawal.
4. Conversion of NRSR/NRNR deposit into NRO deposit before maturity will be subject to the penal provision relating to premature withdrawal.
5. In view of the discontinuance of NRNR/NRSR schemes with effect from April 1, 2002 the proceeds of NRNR deposits can be credited to NRE accounts on maturity but not to FCNR(B) account, while proceeds of NRSR account can be credited on maturity to NRO accounts only. In case of premature withdrawal of NRNR/NRSR deposits, the proceeds should be credited to NRO accounts only.
   (cf. Circular BC. 93/13.01.09/2001-2002 dated April 29, 2002)

A bank, on a request from the depositor, should allow conversion of a term deposit, a deposit in the form of daily deposit or recurring deposit, to enable the depositor to immediately reinvest the amount lying in the aforesaid deposits with the same bank in another term deposit. The bank should pay interest in respect of such a term deposit in the manner indicated in paragraph 9 above without reducing the interest by way of penalty as stated in the said paragraph provided that the deposit remains with the bank after reinvestment for a period longer than the remaining period of the original contract.

A bank, at its discretion, may not apply the rate of interest as stipulated at (a) above in the case of advances upto Rs.3 lakh granted to a member/retired member of the bank’s staff or the spouse of a deceased member/retired member of the bank’s staff against their term deposits specified in paragraph 5 above.

A bank should maintain a reasonable margin on any financial accommodation allowed against the security of a term deposit. It may determine the margin on a case to case basis.

(a) In the case of a term deposit standing in the name/s of

interest should be paid in the manner indicated below:

(b) In the case of balances lying in current account standing in the name of a deceased individual depositor/sole proprietorship concern, interest should be paid only from 1^st May 1983 or from the date of death of the depositor, whichever is later, till the date of repayment to the claimant/s at the rate of interest applicable to savings deposit as on the date of payment.

Note: In the case of NRE deposit, when the claimants are residents, the deposit on maturity should be treated as domestic rupee deposit and interest be paid for the subsequent period at a rate applicable to the domestic deposit of a similar maturity.

A bank may at the request of all the joint account holders allow the addition or deletion of name/s of joint account holder/s if the circumstances so warrant or allow an individual depositor to add the name of another person as a joint account holder. However, in no case should the amount or duration of the original deposit undergo a change in any manner in case the deposit is a term deposit.

A bank may, at its discretion, and at the request of all the joint account holders of a deposit receipt, allow the splitting up of the joint deposit, in the name of each of the joint account holders only, provided that the period and the aggregate amount of the deposit do not undergo any change.

Note: NRE deposit should be held jointly with a non-resident only.

A bank may issue stock-invest against term deposit subject to guidelines issued by Reserve Bank of India from time to time.

All transactions including payment of interest on deposits/charging of interest on advances should be rounded off to the nearest rupee; i.e., fraction of 50 paise and above shall be rounded off to the next higher rupee and fraction of less than 50 paise shall be ignored. Issue prices of cash certificates should also be rounded off in the same manner. Cheques issued by clients containing fraction of a rupee should not be rejected or dishonoured.

A bank should issue term deposit receipt indicating therein full details, such as, date of issue, period of deposit, due date, applicable rate of interest, etc.

In respect of a term deposit maturing for payment on a Sunday or a holiday or a non-business working day, or Saturday in case of NRE deposits, bank should pay interest at the originally contracted rate on the deposit amount for the Sunday/holiday/non-business working day and also Saturday in case of NRE deposits, intervening between the date of the expiry of the specified term of the deposit and the date of payment of the proceeds of the deposit on the succeeding working day.

Banks need not obtain prior concurrence of the Indian Banks’ Association or prior approval of the RBI for introduction of their new domestic deposit mobilisation schemes. However, before launching new domestic deposit mobilisation schemes with the approval of their respective Boards, banks should ensure that the provisions of RBI directives on interest rates on deposits, premature withdrawal of term deposits, sanction of loans/advances against term deposits, etc., issued from time to time, are strictly adhered to. Any violation in this regard will be viewed seriously and may attract penalty under the Banking Regulation Act, 1949.

The provisions in the above paragraphs will not apply to

1. a deposit received by the bank:

1. from the institutions permitted to participate in the Call/Notice/Term Money Market both as lenders and borrowers (Annexure III);
2. for which it has issued a participation certificate;
3. for a period not exceeding 14 days representing money at call or short notice from the institutions permitted to participate in Call/Notice Money Market only as lenders (Annexure IV);
4. under Foreign Currency (Non-Resident) Accounts (Banks) Scheme, Resident Foreign Currency Account and Exchange Earners Foreign Currency Accounts;
5. under the Capital Gains Accounts Scheme, 1988, framed by the Government of India in pursuance of sub-section (2) of Section 54, sub-section (2) of Section 54B, sub-section (2) of Section 54D, sub-section (4) of Section 54F and sub-section (2) of Section 54G of the Income-Tax Act, 1961; and
6. under the Certificate of Deposit Scheme.

(ii) payment of interest on delayed collection of outstation instruments like cheques, drafts, bills, telegraphic/mail transfers, etc.

No bank should -

For the purposes of this clause, ‘political party’ means an association or body of individual citizens of India, which is, or is deemed to be registered with the Election Commission of India as a political party under the Election Symbols (Reservation and Allotment) Order, 1968 as in force for the time being.

(ii) The above prohibition will not apply in the case of the organisations/agencies listed in Annexure V.

Interest rates applicable to deposits held in Non-Resident (External) Accounts

1. All Scheduled Commercial Banks
2. Co-operative Banks other than Land Development Banks
3. Discount and Finance House of India Ltd;
4. Securities Trading Corporation of India Ltd.;
5. PNB Gilts Ltd.;
6. SBI Gilts Ltd.;
7. Gilt Securities Trading Corporation Ltd.,
8. ICICI Securities and Finance Company Ltd.,
9. ABN Amro Securities (India) Pvt. Ltd.,
10. J.P. Morgan Securities India Pvt. Ltd.,
11. Tata TD Waterhouse Securities Ltd.,
12. Kotak Mahindra Capital Company (Unlimited);
13. DSP Merrill Lynch Ltd.,
14. Deutsche Securities (India) Pvt. Ltd;
15. IDBI Capital Market Services Ltd.
16. Corpbank Securities Ltd.
17. HSBC Primary Dealership (India) Pvt. Ltd.
18. Standard Chartered-UTI Securities India Pvt. Ltd.
19. Banc of America Securities (India) Pvt. Ltd.
20. BOB Capital Markets Ltd.

1. Life Insurance Corporation of India,
2. Unit Trust of India,
3. General Insurance Corporation of India and its subsidiaries,
4. Industrial Development Bank of India,
5. National Bank for Agriculture and Rural Development,
6. Industrial Credit and Investment Corporation of India Ltd.,
7. Industrial Investment Bank of India,
8. Export Credit and Guarantee Corporation of India Ltd.,
9. SBI Mutual Fund,
10. Canbank Mutual Fund,
11. Industrial Finance Corporation of India,
12. National Housing Bank,
13. Tourism Finance Corporation of India Ltd.,
14. Export-Import Bank of India,
15. LIC Mutual Fund,
16. Small Industries Development Bank of India,
17. BOI Mutual Fund,
18. Indian Bank Mutual Fund,
19. PNB Mutual Fund,
20. GIC Mutual Fund,
21. BOB Mutual Fund,
22. IDBI Mutual Fund,
23. Birla Mutual Fund,
24. Morgan Stanley Mutual Fund,
25. Shriram Mutual Fund,
26. J. M. Mutual Fund,
27. Pioneer ITI Mutual Fund Pvt. Ltd.,
28. Prudential ICICI Mutual Fund,
29. Alliance Capital Mutual Fund,
30. Zurich India Mutual Fund,
31. Taurus Mutual Fund,
32. Tata Mutual Fund,
33. Reliance Capital Mutual Fund,
34. Jardine Fleming Mutual Fund,
35. H. B. Mutual Fund,
36. Templeton Mutual Fund,
37. Sun F&C Mutual Fund,
38. ITC Threadneedle Mutual Fund,
39. Escorts Mutual Fund,
40. Sundaram Mutual Fund,
41. DSP Merill Lynch Mutual Fund
42. Kotak Mahindra Mutual Fund
43. Infrastructure Leasing and Financial Services Ltd. Mutual Fund,
44. Dundee Mutual Fund
45. ING Savings Trust Mutual Fund
46. Chola Mutual Fund
47. Standard Chartered Mutual Fund
48. HDFC Mutual Fund
49. ICICI Prudential Life Insurance Company Ltd.
50. Royal Sundaram Alliance Insurance Ltd.
51. IFFCO-Tokio General Insurance Company Ltd.
52. HDFC Standard Life Insurance Company Ltd.