New RBI norm on interest computation to cheer savings account holders

The Reserve Bank of India guideline that has directed banks to compute 3.5 per cent savings interest on daily basis instead of taking the lowest deposit during a month is seen as a blessing for savings account holders.

Further still, salary account holders are likely to see their interest income rise by up to 25 per cent with the new rule having kick started from the beginning of this month. The Reserve Bank had in its monetary policy announcement spelt out that payment of interest on savings accounts by scheduled commercial banks would be calculated on a daily product basis with effect from April 1, 2010

According to Crisil, the new method of interest computation will increase the effective interest rate on savings balances, particularly for salary account holders. As per the new norm, it is likely that a salary account holder with a minimum savings balance between 1-2 times of the monthly salary will get interest income between 10 and 25 per cent. The new rule comes in contrast of the earlier one where in banks had been giving interest of 3.5 per cent on savings accounts on the basis of the least deposit in an account between the 10th and the last day of each month.

Meanwhile, for banks, the cost of deposit will go up by 10-20 basis points depending on the share and pattern of the current and savings accounts. However, this rise will not in any way prove bad for banks’ profitability. It is in the meantime being pointed out that banks who boast of  a dominant share of salary accounts with highly fluctuating balances may see some impact.

Reports quoting Crisil ratings said that the average current and savings accounts levels in the domestic banking system stood at 33 per cent, with savings deposits accounting for 22 per cent as of March 2009. However, it may also be seen that the share of savings deposits rose to 25 per cent as on December 2009, thereby pushing up current and savings account levels by 2-4 per cent by March 31, 2020.

Similar Posts:

• Citibank launches Citi Online Remit, online money Transfer service
• State Bank offers cheapest home loans at 8% interest rate
• Ally Bank, the new name for GMAC Bank
• Nokia Money mobile-banking services in India
• Bharti Airtel quarterly report shows 7.8 % drop in net profit