RBI’s directive may help clients earn more from savings accounts

With the central bank of the country mandating all banks to compute interest on savings accounts on a daily basis, account-holders will reap better rewards from their deposits

The credit side of your passbook will soon show much healthier figures, instead of the measly amount your savings deposits earned until now. The Reserve Bank of India’s (RBI) recent directive to banks to start calculating interest rates on such accounts on a daily basis from 1st April will bring cheer to millions of savings account-holders in the country.

Under the new system, banks will now calculate interest on your savings account on daily balances, replacing the current archaic system where banks compute interest on the lowest available balance held between the tenth and the last day of the month.

The current system is no less than a rip-off for the common man, as banks have become used to getting low-cost funds at the cost of hapless savings account holders. This is how it used to work: Suppose you held Rs20,000 in your savings account at the end of the 10th day of a month, subsequently withdrawing Rs15,000 at the end of the month, you would only earn interest on the lowest balance in your account for the entire month—in this case, Rs5,000. As such, your account will be credited with Rs175.

However, under the new system, even if you have withdrawn Rs15,000 at the end of the month, you will get interest not only on your account balance on the last day of the month (Rs5,000), but also on the daily balance held for the first 29 days of the month. In this case, the interest will add up to Rs682.50.

For banks, though, this will obviously raise the cost of funding. Banks with higher proportion of CASA (current account and savings account) deposits in their funding sources will get hurt the most. Margins will get squeezed unless the RBI decides to act on the bankers’ call to reduce interest rates on savings accounts. This is highly unlikely, however, as it would defeat the very purpose of RBI’s depositor-friendly stance in this matter.

Speaking about the impact of this move on banks, SSN Murthy, senior vice president, Indian Banks’ Association (IBA) said, “The interest payment will now be high for banks. We are asking for some reduction in interest rate. We are trying to either continue the old procedure or are asking for a reduction to 2.5%.” He also added that it would likely result in a rise in liquidity for banks as people will put money into savings accounts to get the benefit of more interest payout.

Although the central bank had proposed this move two years back, banks had asked it to postpone the same citing unfeasibility due to lack of computerisation. Now that majority of the banks are well-equipped with computers, RBI has finally asked banks to implement the decision from 1st April. Customers are unlikely to be fooled this April Fool’s day.

However, banks may still try to circumvent the new regulations by attempting to reduce the interest rate chargeable on daily basis through some subterfuge. In such a scenario, depositors may still find themselves short-changed, unless the RBI takes a hard stand on the matter.

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    1 decade ago


    santosh patel

    1 decade ago

    its still not clear what amount we will get and what is the rate of interest on daily basis so will u please clear it


    1 decade ago


    R Balakrishnan

    1 decade ago

    My understanding is that Banks are going ahead. The present average cost of savings works out to between 2.4 and 2.8 percent per annum. Banks have approached the RBI to reduce the rates from 3.5 to 2.5 percent. Most likely that will happen.
    World over, savings account do not pay interest. If you have a check book, then no. Otherwise yes. But we are different and like this only!

    Shoeb kadri

    1 decade ago

    I liked the article and story coverage a lot,Would like more elaborated report from Moneylife,I think this will get implemented siting "Aam Admi" budget this year,Banks would be forced to change their calculation method,It's a good move.


    1 decade ago

    Banks never asked RBI or others when they increase the service charges, though the value of the service is marginal not comensurate with the charges they levy. Private and Foreign banks are the worst offenders with charging a heavy (dis)service charge when the minimum balance (Not a small amount that too) is not maintained.

    K Narayanan

    1 decade ago

    What RBI would do if they don't pay.There is direction to the banks to issue pass book to SB account holders.While old generation pvt sector and public sector banks give passbook the new generation pvt sector banks care a damn about the same.Try getting the pass book from them and you deserve to be listed in the guinness record books.As per latest reports the banking ombudsman recd 69117 complaints during 2008-09.Is it possible to attend to such a large complaints.They are mainly relating to unsolicited credit card,loan over phone,unsolicited insurance policy issuance and debit of the premium,excess billing .No responsible person to answer,It is all in public domain.What RBI has done.Nothing.Peanlise the MD of the bank for unsolicited card and insurance policy issuance,Stop issuing license to such bank.Or nationlise the banks.The service may be poor but at least the loot will not be there.In our country if you allow free run to new generation banks sooner or later they will loot the customers and they know how to purchase the RBI officials,govt agencies and politicians,Don't be enamoured by the excellent service.It is not a symbol of efficency but the eventual looting of your money


    1 decade ago

    Is the saving a/c int rate will come down?

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