Unclaimed fixed deposits might be harder to claim than you thought

Here is a real-life story of legal heirs of a deceased, who successfully managed to claim a matured fixed deposit along with compound interest after 15 years

What happens when someone, in absence of a nominee, dies before the fixed deposit is matured? Most of the times, the legal heirs are clueless as to what assets the deceased held and the process to deal with claiming the same from financial institutions. One of our readers brought to us an interesting case.

A family had found out about the deceased assets, in this case—a fixed deposit (FD) with Syndicate Bank, only after 15 years, while combing through the last remnants of a trunk left in their attic. This situation is quite common not just in India but all over the world.

So what happens to the fixed deposit in such a case?

The simple case would be that the assets would be transferred to the nominee. However, we learn that, in the 1970s, nomination facilities weren’t readily available. In fact, one had to ask for it. Thus the deceased was probably not aware of such a facility. Moreover, the family wasn’t aware that the deceased held a FD.

Usually, Syndicate Bank would have to notify the depositor, whether alive or dead, on the maturity of the FD. In some cases, these letters go unnoticed as there may not be anyone residing after death and the relatives might be living elsewhere.

We found out that according to RBI: “If the letters are returned undelivered, they may immediately be put on enquiry to find out the whereabouts of customers or their legal heirs in case they are deceased.”

Therefore, if the bank does not hear from the depositor for a period of time, it must use whatever methods at disposal to track down its legal heirs.

When this family found out about the existence of the FD, they approached Syndicate Bank in order to claim the FD, along with stipulated interests. However, the family was “bullied” by the Bank for not taking measures to claim the FD at time of death of the depositor. What was surprising was that the deceased lived one floor below Syndicate Bank’s office! The Bank might have been aware of the death of the depositor, but had not bothered to track and inform the legal heirs of the same. Instead, they had virtually used the depositor’s FD for “free”.

This isn’t the only peculiarity with FDs and death before its maturity. We learn that there’s another issue—the question of how much the legal heirs are entitled to the interests and FDs.

According to Syndicate Bank: “....In the case of death of the depositor after the date of maturity of the deposit, the bank shall pay interest at savings deposit rate obtaining on the date of maturity from the date of maturity till the date of payment.”

The logic in this case is that the fixed deposits had matured when depositor died, and thus Time Deposit had become Demand Deposit (i.e. savings bank). Therefore, if the FD is not claimed within due time, it will be converted to a savings bank account and only the savings rate would apply henceforth.

However, it is different in case the depositor dies before maturity, as in this case, “In the event of death of the depositor before the date of maturity of deposit and amount of the deposit is claimed after the date of maturity, the Bank shall pay interest at the contracted rate till the date of maturity. From the date of maturity to the date of payment, the Bank shall pay simple interest at the applicable rate obtaining on the date of maturity, for the period for which the deposit remained with the Bank beyond the date of maturity; as per the Bank's policy in this regard.”

The key word here is “simple interest at the applicable rate”. What does the simple interest means? Is it savings rate? Or a rate decided by the bank without the knowledge of the depositor’s legal heirs? The wording used here gives the bank the freedom to choose whatever rate it prefers, which will be usually less than the contracted rate.

Syndicate Bank had offered the legal heirs savings rate instead of the contracted rate, thus trying to fleece its customers.

What do we learn from this episode?

Simple, customers are taken for granted by the banks. Most of the times, the customers are short-changed without their knowledge, even in the simplest of cases. In this case, the Bank failed to take cognizance the fact that the FD was taken in the 1970s, where rules and banking practices were different then. It is the bank’s duty and responsibility to ensure that common sense be applied to cases such as these and adapt it accordingly within the framework today in such a manner that is fair to the legal heirs.

Also, there ought to be a solution to communicate better to the legal heirs of the deceased, which would not only make the bank’s job of tracking down legal heirs much easier, but also serve customers better. While the employees of Syndicate Bank in the 1970s and 1980s may have failed in their duties, the bank had no right to bully the legal heirs because of some lapse of its own employees many years ago.

Fortunately, despite all this, we learn that the legal heirs have managed to obtain a succession certificate as well as a court order stating that Syndicate Bank must pay compound interest at the contracted rate, but only after a lot of hard work done by them.

  • Like this story? Get our top stories by email.




    1 year ago

    please give me this supreme court case number and references

    Ratul Roshan

    2 years ago

    Hello, need some help.

    I've been trying to locate any RBI circular which states either that a) a fixed deposit turns into a demand deposit after maturity and therefore bank rate of interest is payable thereafter or b) bank rate of interest is payable on unclaimed deposits.

    Our FD with Allahabad Bank matured back in 2002 but we couldn't claim till very recently and are seeking bank rate of interest.

    Shibaji Dash

    8 years ago

    A correction in the 1st line of my comments day ago. It should read as : a nominee may or may not be a legal heir.

    Nagesh Kini FCA

    8 years ago

    I entirely agree with Shibaji Dash, the Ministries of Finance and Consumer affairs need to come out with clear cut directions now that they are talking of inclusive banking going into rural India in a big way.

    Shibaji Dash

    8 years ago

    With all respect for Mr. Vinay Joshi, may I further add that the logic of caveat emptor ( buyer be aware) ought not to apply to the depositor-nominee issue.With increasing penetration of banking to rural areas, a more responsible, responsive and a real pro-active role is warranted for the Govt. and the Regulator.

    Shibaji Dash

    8 years ago

    With reference to comments of Mr. Vinay Joshi: it's trite to point out that a nominee is not a legal heir.Mr. Joshi is perhaps have in mind the ruling of the Supreme Court in this regard in 2011.Point I made is law/regulations must be dynamic to address the newly emerging problems and hence efforts must be on to make Succession Act and nomination Regulations converge to make nomination harassment -proof.Alas, with a Govt. that legalizes fudging of bank loans, legal professionals who are greedy for expanding areas of disputes and, finally with increasing spread of regulation illiteracy among bank officials, depositor citizens are doomed to suffer.

    arun adalja

    8 years ago

    bank is responsible to pay the matured amount to nominee if depositor dies and bank must do all efforts to find out the whereabouts of depositor it is the social responsibility of bank and effors must be notified to rbi.today many crores rupees are lying with the company for unclaimed dividend from the share holders as companies are not intimating shareholders everyyear so the thing is accumulated and finally it goes to fund from where you cannot claim we must find out some mechanism to this issue.

    R Nandy

    8 years ago

    As a single account holder in a couple of private bank I had to
    face some difficulty while getting my FD's nominated. Both the banks
    insisted on 2 witness signatures for accepting the nomination. I had to
    send them a copy of the RBI circular in this regard(which makes it
    unnecessary to give signature of 2 witnesses) and get the nominations
    registered. Incidentally I was not nominating earlier due to financial
    illiteracy. I was surprised that even many bank officials are ignorant
    of the latest nomination rules. Nor has the banks updated the DA1-DA3
    forms based on the new rules(no witness signature) of nomination.

    a v moorthi besides TIHAR

    8 years ago

    The banks are required to submit to the Reserve Bank, a return in Form VIII showing unclaimed deposit accounts in India which have not been operated upon for 10 years or more, as at the end of each calendar year. A separate folio may be opened in the register for different types of deposit accounts.unclaimed deposits Term Deposits lying with them beyond 10 years from date of maturity to their head office who in turn deposits it to RBI. ML should find out whether this happened in this particular case if otherwise it is clear systems are on paper only there is no monitoring of such process by annual inspection, concurrent auditors if the branch is provided with one, RBI inspection at H.O. whether bank is reporting unclaimed deposits and lastly when balance sheets are signed by CAs (balance sheets auditors) are they looking into such provisions and whether they are being followed.

    Vinay Joshi

    8 years ago


    Consumer is the king! Appreciate the subject put forth.

    Similarly [a relative case] Indian Post office [deposits] in dock for being indifferent.

    They were asked [dept indicted] by the consumer court to pay up for keeping widow in dark in Jt.A/C case.

    Subject matter : A joint deposit cannot be treated as an individual deposit after the death of one of the joint holder.—Read-

    Two joint a/cs established in Post Office under MIS, 420K first holder with wife as joint holder. Second 180K with wife as first holder, opener second jt.

    First 420K holder – expires during the subsistence of the scheme. The joint. holder wife approached the postal authorities for legal changes, was advised by the officers not necessary as deposits were payable ‘either or’ & death to be registered at the time of maturity of the deposits.

    On maturity of the deposits wife was told that investment limits were 300k for individuals & 600k joint [as at the time of investment fulfilling.] but the death now amounts to individual deposit[s].

    Further she was told that she has violated prescribed limits. Hence no bonus, excess deposit interest reversed, plus penalty to be adjusted & deducted from the maturity value of the deposits.

    The Consumer court judgment Dt, Dec 2,2011 noted the deceased’s wife, the joint holder had approached the postal authorities, irrelevant advise given.

    The postal authorities were made liable, total payout, 9% interest plus 5k costs.

    The post rule -- Rule 20, --- ‘ when the death of a joint holder is reported, the post master has to instruct the surviving depositor to withdraw the amount in excess of single name deposit limit.

    [By Jehangir B.Gal.]


    Nagesh Kini FCA

    8 years ago

    The mandated KYC compliance ought to include Nominee particulars in addition to identity and residence proof, at the account opening stage itself to mitigate hardships later.
    The BCSBI should lay down in clear terms the rate of interest on unclaimed deposits. After all the banks are making use of the depositors to lend out and earn interest. So it has to be interest compounded at the contracted rate.
    As a part of Customer Service once a while the banks ought to track down on the unclaimed deposits more particularly to track down heirs.


    Vinay Joshi

    In Reply to Nagesh Kini FCA 8 years ago

    Dear Mr. Nagesh Kini, FCA,

    Under the Banking Regulation Act or RBI or standard banking aspects – why BANK’s should trace legal heirs? Who is the bank ?

    They are mandated to deal with the deposits & accounts held as per the banking regulations. That’s all.

    Is nominee a legal heir? In which manner can bank’s mitigate hardships?

    Nomination has different meanings under diff acts which I need not tell you, viz, Co’s Act, debts act, insurance, EPF, banks, coop soc,

    But some acts provide for nomination ‘expressly overriding’ succession laws. [not banking regulation of 1949.] & the rights are to the “exclusion of all persons”.

    As a part of customer service HDFC will levy charges for inoperative a/cs or un-deliverable courier.


    Who earns? Who earned earlier in telcom imbroglio?

    Why today PwC is sued upon? [partners.]


    nagesh kini

    In Reply to Vinay Joshi 8 years ago

    You don't have to teach a RBI empaneled bank auditor now turned activist that "the banks are mandated to deal with deposits and accounts". The banks do make use of the depositors' funds lying in Unclaimed Deposits to make Advances and earn interest. Consequently they owe interest to these depositors.
    That the advances go to become NPAs and law firms are making money is irrelevant. Don't mix issues.

    Vinay Joshi

    In Reply to nagesh kini 8 years ago

    Dear Mr.Nagesh Kini, FCA

    Oh! RBI empaneled! Earlier you were Insurance!

    In which year you were empaneled? What audit highlighted?
    What activist are you? Can you highlight? One single! This is my challenge!

    Oh! Panelist auditor, may I respectfully ask from you - what are the RBI provisions for unclaimed deposits? What is the definition of ‘unclaimed’? What should the banks do?

    Is there such segregation of funds? Mr. Auditor answer! If at all you can, which you never can! Will not!

    Mr. Nagesh Kini, FCA , activist [no auditor now], - ‘EXPLAIN UNCLAIMED DEPOSITS TO MAKE ADVANCES’ – your statement - such advances become NPA’s – your statement!

    Mr. Nagesh Kini, FCA, -- what is the percentage of unclaimed deposits? How much is NPA’s?

    What is the total bank’s lending?

    ICAI, [FCA] member’s comments I honour but not ridicule it out of respect to the institute.


    nagesh kini

    In Reply to Vinay Joshi 8 years ago

    Mr. Joshi, you are a limit.
    I'm not answerable to all your frivilous questions on my standing. My firm was empaneled with the RBI for Bank audits and the CAG for Insurance and PSU audits since the 1970s.
    I don't want to take your tirade any further by seeking your 'competence',if any.
    Suggest you knock the doors of the RBI with your silly queries.
    Enough is enough.

    Vinay Joshi

    In Reply to nagesh kini 8 years ago

    Dear Mr. Nagesh Kini, FCA,

    Answer the comments posed. Each & every.

    Then we will see limit & extreme.

    We commoners should have inputs from you RIGHT!


    nagesh kini

    In Reply to Vinay Joshi 8 years ago

    Now that you yourself admit that you are a self styled "commoner", you need to be more reasonable in trying to challenge some one in the profession with your half baked knowledge.
    Kindly refrain from such acts.

    Shibaji Dash

    8 years ago

    RBI must make it mandatory that the depositor must nominate at least one nominee and two at the option of the depositor and such nomination must be the pre-conditions for making the FD. The existing law of nomination read with the relevant provisions of the Indian Succession Act urgently requires a fresh look by the Govt.to spare the deceased's heirs from the agony and expenses for a probate that takes years to obtain from the court. Moneylife deserves all cudos for the efforts its team is making in increasing awareness among the people about the benefits of making a Will.


    Vinay Joshi

    In Reply to Shibaji Dash 8 years ago

    Mr.Shibaji Dash,

    Nominee[s] is/are not legal heir[s].

    So Govt. need not look into anything.

    Why people across board do not hold in joint names esp; bank - 'either or survivor'?

    In seventies also the bank FD form did contain nomination clause, unlike stated by MLD. More soever the SB A/c was the only route apart from CA.


    K Sanjay Singh

    8 years ago

    No doubt,legal heirs faced a lot of hardship in that case. If seen from other angle,it was the depositor who didnot adequate care by not informing his family members. why should the bank pay interest and why shouldnot the bank be compensated for safekeeping the money beyond its obligation ?


    Gopinath Prabhu

    In Reply to K Sanjay Singh 8 years ago


    Bank has to pay because

    1. It has made use of the money
    2. It has not fulfilled its responsibility to informing the legal heirs despite knowing its sitting on Unclaimed FDs.

    Ashok Visvanathan

    8 years ago

    What you have described is for Bank Deposits. In the case of Company Fixed Deposit, no interest is payable after maturity, even 16 years later.


    8 years ago

    even i have to share an experience abt Syndicate Bank. I have taken a housing loan with the bank. i used to pay more than my EMI regularly. But it was noticed later that the bank was charging me interest on the balance amt- the actual EMI, and not on the amt paid. when i brought it to their notice, at first they shrugged it off saying it was i at fault by paying extra amt, inspite of their being no prepayment charges. but finally they credited my A/c wth the extra amt after a lot of correspondence

    Double Bonanza for non-resident Indians

    The Reserve Bank of India has recently deregulated interest rates on NRE rupee deposits which are beneficial to NRIs who wish to deposit their surplus funds with banks in India. There are, however, some caveats that NRIs should remember before investing in bank deposits in India 

    The Indian rupee has been depreciating for the last several weeks and from around Rs44 to a dollar, it has now reached a level of around Rs53 and is hovering in the range of Rs52 and Rs54 to a dollar at present. This nearly 20% depreciation of the rupee has proved to be a blessing in disguise for the non-resident Indians (NRIs), as they not only get more rupees for their dollars, but also higher tax-free interest on their non-resident external (NRE) rupee deposits, now that Reserve Bank of India (RBI) has deregulated interest rates offered by banks on NRE rupee deposits.

    With the burgeoning foreign exchange reserves of the country, the rates of interest payable by banks on NRE deposits till recently were regulated by the RBI and it was linked to London Inter-Bank Offered Rate (LIBOR). So the rate offered by banks on NRE rupee deposits were as low as 3% to 4% per annum and the banks had no freedom to offer anything higher than these regulated rates.

    With the recent sharp depreciation of the rupee, the RBI has taken a series of steps not only to stem the fall, but also to attract foreign currency into the country. One of the steps taken by RBI is to deregulate interest rates offered on NRE rupee deposits, and many banks in India have consequently during the last few days increased the interest rates on NRE rupee deposits to as high as 10% p.a. for fixed deposits of tenor varying from one to two years.

    Let us go to the basics first. At present NRIs can place their surplus funds with banks in India in three different ways.

    1. NRIs at the time of emigration to a foreign land would have had some savings with them. Besides even after becoming a non resident, they would be receiving interest, dividends, etc, on their earlier investments, or rent from their property owned by them but now leased out in India. All these funds can be deposited with banks in India in what is called as non-resident ordinary savings accounts (NRO). In fact, the savings bank accounts held by residents after they leave India on employment, etc, gets renamed as NRO accounts in which the NRIs can continue to deposit their local funds originated in India. These surplus funds can be invested in fixed deposits with banks, and they are also called as NRO deposits. These funds having originated in India are normally not repatriable without prior permission from the RBI. But now the RBI has allowed repatriation of these funds up to certain limits (presently up to $1 million a year) and subject to certain conditions. Besides, the interest earned on these NRO accounts is subject to tax deduction at source at a flat rate of 30.9%. NRIs whose total taxable income in India is less than the basic exemption available to individuals under the Income Tax Act can get back this TDS deducted as refund if they file their tax returns in India.

    2. The second type of bank deposits allowed in India for NRIs is called NRE deposits. These are called non –resident external accounts, because the funds for opening and maintaining these accounts are required to be remitted from abroad as free foreign exchange. These funds received in foreign currency are converted into rupees and credited to either NRE SB account or NRE fixed deposit accounts of NRIs. The best advantage of the NRE accounts is that these funds along with the interest earned on these funds are fully re-patriable to a foreign country of their choice without any restrictions, whenever required by the depositor. Besides the interest earned on these deposits is totally free from Indian income tax.

    3. The third type of bank deposits permitted for NRIs is in the form of foreign currency and they are called Foreign Currency Non Resident (FCNR) deposits. They can be kept in any currency which is freely convertible as defined in Foreign Exchange Management Act (FEMA), namely, US dollar, Canadian dollar, British pound, Euro currency, Japanese yen, Australian dollar, etc. They carry interest at the rates regulated by the RBI and linked to LIBOR and is fixed in the beginning of each month as per the procedure prescribed by the RBI. These deposits with interest are also freely re-patriable and the interest earned in the respective currencies on these deposits is also free from Indian income tax.

    The interest rates offered by different banks for all the three type of deposits are subject to change and hence NRIs are advised to ascertain the rates offered by banks by visiting the website of their preferred bank before making investments in India. They can certainly shop for best rates available and decide on the bank most suitable having regard to their convenience and the quality of service rendered by the bank. What is liberalized by RBI last week was that it allowed banks the freedom to fix interest rates on NRE rupee deposits which was hitherto regulated and linked to LIBOR. The rates of interest for NRO fixed deposits were freed earlier and each bank is, therefore, now free to quote their own rates for both these type of deposits, subject to the condition that these rates cannot be higher than those offered by them on comparable domestic rupee deposits to Indian residents.

    In order to facilitate smooth banking operations for NRIs in India, the RBI has recently permitted following facility to NRIs who wish to bank in India. With effect from 22 September, 2011, NRIs are permitted to open NRE/FCNR accounts with their resident close relative ( close relative as defined in Section 6 of the Companies Act, 1956) on former or survivor basis. The resident close relative shall be eligible to operate the account as a Power of Attorney holder in accordance with the extant instructions during the life time of the NRI/PIO account holder. 

    There are, however, four caveats mentioned below that the NRIs should remember before investing in bank deposits in India.

    1. NRE and NRO deposits, being denominated in Indian rupees, are subject to exchange risk. The rate of exchange being volatile and since nobody can predict the future, the Indian rupee can depreciate or appreciate depending upon the conditions of our country’s economy as well as the global economy. Therefore, when these funds are to be repatriated abroad on a future date, the exchange rate prevailing then will be applicable which may result in capital loss or profit. In short, the exchange gain or loss will be squarely on the shoulders of the NRI depositor.

    2. Though income earned on NRE and FCNR deposits at present is tax-free in India, it may be taxable in the country where the NRIs live and they should, therefore, consult their tax advisor in the country of their residence to be clear about the tax implications of investing in India. There are certain double taxation avoidance treaties between India and many countries of the world, which may mitigate the tax burden to some extent, but this can best be ascertained from the tax advisor before investing in India.

    3. The rules of investment in India by NRIs are framed by the RBI under the Foreign Exchange Management Act and with regard to tax by Government of India under Indian Income Tax Act and they are, therefore, subject to change from time to time. NRIs are advised to consult their financial advisor for any clarifications in this matter.

    4. The chances of commercial banks in India going bust are remote, if past experience is any indication. Whenever any commercial bank is tottering, the RBI normally wears the hat of a marriage counselor and arranges to marry or merge a weak bank with a strong one, so that the depositors do not lose money, though shareholders may or may not get their full investment. But the same can not be said of co-operative banks.

    (The author is a banking & financial consultant. He writes for Moneylife under the pen-name ‘Gurpur’)

  • Like this story? Get our top stories by email.



    Bhalachandra Singde

    8 years ago

    Can Mr. Gurpur throw some light on the investments made by Oversees Indian Origins, who opted that country's citizenship, and are not termed as NRIs? If such persons wish to invest in India what are the benefits that they may get and what are the obligations on them?

    Vinay Joshi

    8 years ago


    [Pseudonym is of no use, identity can be established instantly.]

    A dip in India’s foreign currency assets resulted in a $4.67 billion decline in the country’s forex reserves to $302.1 billion for the week ended December 16.

    Foreign currency assets fell by $4.668 billion to $266.968 billion for the week, the RBI said.

    When UAE, tax free, banks are offering attractive loans to expats for investments into NRE/FCNR a/cs why the same should be a concern?

    Even 10% is an as offer by a private bank?

    Will not talk of fiscal deficit but current a/c deficit is tantamount to financing domestic needs thro" foreign country savings!

    What is our savings ratio to GDP?

    The bearish trend escalated by Euro crisis esp in emerging markets has a breather as US is in resilience with Germany stable.

    As a matter of fact inflation adjusted depreciating INR is on its path, good for growth instead of artificially depreciating it!

    Before Q4 it should be at 49/49.5 or so, NRE/FCNR will have more returns which can wipe the cost of borrowing & enjoying the free iPad with the loan availed!! But no funds are coming.

    Current a/c deficit reduction unlikely with rising fiscal but by June 2012 foreign currency debt repayment of 139Bn$ due - approx 43% of present reserves.

    The funniest part is out of PIIGS [ Portugal, Ireland, Italy, Greece, Spain] Italy enjoys a rating 'A' downgraded from A+ with negative outlook.

    The ECB's providing $645bn to Italy in three year tender is tantamount to support battered sovereign debts.

    What is India's rating w/o sovereign debt probs?

    No one will support India & we will be back to 1991 & the same person is bound to resolve it IF AT ALL SUCH A SITUATION ARISES! GOD FORBID!

    No, with the present turmoil & macro economic situations anything possible.


    Anil Agashe

    8 years ago

    As usual banks are going over board with the high rates they are offering. How are they going to lend these funds? At what rates do they think borrowers will be attracted to borrow? The rates offered seem mindless. Their cost of borrowing is going to rise. RBI has paused and food inflation is down. So in the new year one may see reduction in interest rates.


    Vinay Joshi

    In Reply to Anil Agashe 8 years ago

    Dear Mr. Anil Agashe,

    Where is the liquidity in banking system?

    Last Friday 23, banks borrowing stood at 1.73 trillion rupees, incremental 7K Cr over previous week [1.66trn]!


    anil agashe

    In Reply to Vinay Joshi 8 years ago

    What are they doing with this money? Their NPAs are rising. It wld be better for RBI to cut CRR if banks need liquidity. That will be profitatable for banks than borrowing at such high rates.

    Vinay Joshi

    In Reply to anil agashe 8 years ago

    Dear Mr. Anil Agashe,

    What are they doing with this money? Your quest! Definitely they are not keeping it for themselves!

    What is the correlation of borrowing – NPA – CRR? Please can you answer, if at all!

    What is CRR?!

    Last Friday 23, banks borrowing from RBI stood at 1.73 trillion INR.

    Why should they borrow? Which high rates are you talking about? Hearsay!! Explain.

    It seems my response to Gurpur was incomprehensible to you.

    What is the banks borrowing rate & norms of their borrowing? from which sources?

    Already leeway [-] 1% SLR there exceeded by 1.91%.
    The Govt.’s fiscal arithmetic gone awry so this fisc borrowing heavily.

    DEC 30, 15KCr bond issue, earlier 4KCR auction was cancelled.

    As far as asset quality is concerned it’s diff an issue.
    No CRR cut. It will be only when RBI wants to intervene in forex & mop-it-up against the $ released. Not in the near future. Its complex.



    8 years ago


    dilip kr sarkar

    8 years ago

    its a bonnza for our economy . kudos to RBI.

    Saving account rate hike could put pressure on banks’ margins

    The RBI says that the competition in this space, which was non-existent earlier, could rise as banks with lower CASA ratio could rush to gain such deposits by raising rates

    The Reserve Bank of India (RBI), in its Financial Stability Report (FSR) for December 2011, warns that competition among the banks to offer higher interest rate on saving accounts could put pressure on banks’ margins.

    According to the apex bank “The impact of such rate hikes on banks’ profitability will need to be monitored carefully as already the banks’ cost of funds have gone up and such rate hikes will put additional strains on banks’ net interest margin.”

    It further added that the effect, however, may be muted, based on the churn in customers and cost structures adopted by individual banks. A corollary to the event would be that in a falling interest rate scenario, saving bank deposits rate may also moderate accordingly.”

    The RBI says that the competition in this space, which was non-existent earlier, could rise as banks with lower CASA (current account savings account) ratio could rush to gain such deposits by raising rates.

    According to the FSR, a major attraction of saving deposits for banks is that it offers low-cost source of funds, as evident from the fact that banks with higher share of CASA deposits (current account- saving account), of which saving deposits is a major part, enjoy low-cost deposits. CASA deposits are not uniform among the banks.
    RBI feels that, “Banks are likely to partially offset the impact of the increase in interest cost by levying transaction and servicing charges and thus pass on the additional cost to the customer.”  

    The apex on 25 October 2011 deregulated interest rates for savings accounts in banks. Subsequently few banks raised interest rates to 6% on savings accounts compared to the earlier 4%. For instance, private sector player YES Bank raised it up to 6% and recently raised it to 7% per annum on deposits of Rs1 lakh and above.

    Kotak Mahindra Bank followed with 6% rate per annum on all savings accounts with balance above Rs1 lakh and IndusInd Bank is offering 5.5% per annum where the balance is below Rs1 lakh and 6% per annum for accounts having more Rs1 lakh.

  • Like this story? Get our top stories by email.



    Vinay Joshi

    8 years ago


    I'm perplexed that with Ms.Sucheta & Mr. Debashish around how you always get things wrong?

    Write to me if i'm wrong!

    What is the reverse repo rate? What is the overnight call money rate? Why RBI removes cap on 'mobile banking transactions'?

    Why RBI has allowed banks to borrow additional from MSF? Why only on overnight basis? Further RBI has also stated that can borrow [-]1% SLR on overnight basis! It will not be construed as default in SLR!

    Where is the liquidity? Advance Tax/Service tax has sucked it up!

    About $160Bn India borrowings from EU is facing an uncertain future! De- leveraging!

    By June 2012, $137Bn [43.5% of total present forex reserves!] external debt up for maturity.!?

    What about NPA's? Bad debts!

    SBI has done a wise thing of postponing its $5Bn FCB! WHY IT REQUIRED?

    By Dec 17, banks had borrowed record 1.66L Cr. WHY?!!

    It's 2.91% of aggregate instead of MSF 1%!

    Is there credit growth? In fact lesser by 65K Cr. & deposit growth higher by 150K.Cr! WHY?!

    Why RBI's US Treasury Holdings dropped by $6.6Bn?

    Why RBI has infused thro" OMO 24K.Cr? [buy back of excess securities.]

    So by raising int. rates the banks are retail borrowers, depositors park long term apart from 6%&7% paying banks depositors which is not for common man!

    MDT, i've would have appreciated had you substantiated by real figures!



    It was a bad piece of article, never ever expected from MoneyLife!

    OH! You have to attribute it it to RBI Fin Report! What are your analysis!

    PLEASE FORWARD TO ME RBI REPORT! It has never stated on retail margins! I'm reproducing hereunder the pertaining para for YOUR INFO!

    Quote " Pointing out that bank margins could come under pressure, the RBI said servicing of loans have come under stress due to rise in input prices, interest rates, and slackening demand and infrastructure constraints"...... Unquote.

    Sadly, Ms.Sucheta & MDT not highlighting that FSR has stated that the banking industry can cope with credit risk shocks!Neither on 'stress test'.

    So Ms.Sucheta & MDT have it from me - not SB A/c int. but debts can create untoward position with current a/c & fiscal deficits!


    N.B. never fake reports to put in your thoughts.



    In Reply to Vinay Joshi 8 years ago

    We readers really feel sorry to your parents who named you Vinay, where there is not even a single point in your rants that justifies the name.
    Anyway, before calling a genuine report as fake because you think you are more wise and know everything is not good either. So stop barking. Here is the link to the original report http://rbidocs.rbi.org.in/rdocs/Publicat...
    And keep your thoughts withing your eyes and ears only.

    Vinay Joshi

    In Reply to Paresh 8 years ago

    Mr. Paresh,

    I would have appreciated your professional response. It would have reflected you in high esteem.



    8 years ago

    "This is some sample text. You are using FCKeditor."

    Where is the article?


    Vinay Joshi

    In Reply to sachin 8 years ago


    FCKeditor is pase its CKEditor! OK!

    What do you know about 'MoneyLife'?

    What is some 'sample text'? What is the rating of CKEditor?

    Well beyond comprehension.


    We are listening!

    Solve the equation and enter in the Captcha field.

    To continue

    Sign Up or Sign In


    To continue

    Sign Up or Sign In



    online financial advisory
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)
    FREE: Your Complete Family Record Book
    Keep all the Personal and Financial Details of You & Your Family. In One Place So That`s Its Easy for Anyone to Find Anytime
    We promise not to share your email id with anyone