FAQs

Domestic Deposits

NRI Deposits

Advances

Advance against Shares and Debentures

Domestic Deposits

1.		Can banks accept interest free deposits?
		Banks cannot accept interest free deposits other than in current account.

2.		Can banks pay interest on savings bank accounts quarterly?
		Banks can pay interest on savings bank accounts at quarterly or longer rests.

3.		Can banks pay interest on term deposits monthly?
		Interest on term deposits is payable at quarterly or longer rests. Banks can pay interest monthly by discounting the quarterly interest accrued.

4.		Can banks pay differential rates of interest on deposits aggregating Rs.15 lakhs and above?
		Differential rates of interest can be paid on single deposit of Rs.15 lakhs and above and not on the aggregate of individual deposits where such total exceeds Rs.15 lakhs.

5.		Can banks prematurely repay the term deposit on their own?
		The term deposit is a contract between the bank and the customer for a definite term and it cannot be paid prematurely at bank's option. Term deposit can be paid prematurely at the request of the customer.

6.		How and when are banks required to pay interest on the deposits maturing on holiday/non-business working day/Sunday?
		Banks should pay interest at the originally contracted rate on the deposit amount for the holiday/Sunday/Non-business working day intervening between the date of expiry of the specified term of the deposit and the date of payment of the proceeds of the deposits on the succeeding working day.

7a.		Can banks refuse premature withdrawal of term deposits?
		Banks cannot refuse premature withdrawal of term deposits.

7b.		Can banks levy penalty for premature withdrawal?
		Banks have freedom to determine their own penal rates of interest for premature withdrawal of term deposits.

8.		Can banks pay additional interest admissible to bank's staff on the deposit placed in the name of minor child/children of the deceased member of staff?
		No. Children (including minor) are not eligible for additional interest admissible to bank's staff member/retired staff member.

9.		Can additional interest admissible to bank's staff can be paid on the compensation awarded by the court to minor child and deposited in the joint name of minor child and parent?
		No. As the money belongs to the minor child and not the bank's staff, additional interest cannot be paid.

10.		Can banks open savings bank accounts in the name of Government Departments/Government Scheme?
		Savings bank account cannot be opened in the name of Government Department/ Government Scheme, excepting in respect of deposits of Government organizations/agencies mentioned in Annexure.

11.		At what rate is the interest payable on the deposit standing in the name of deceased depositor?
		In case of a term deposit standing in the name of a deceased depositor, interest will be paid in the following manner. If the payment of deposit is claimed before the maturity, the interest is payable at the rate prevalent on the date on which the deposit was placed with the bank and as applicable to the period for which the deposit remained with the bank, without charging any penalty. If the payment of deposit is claimed after the date of maturity, the interest is payable at the contracted rate upto the date of maturity. From the date of maturity till the date of payment of the deposit, the bank shall pay interest at simple rate of interest prevailing on the date of maturity as applicable to the period for which the deposit remained with the bank from the date of maturity of the deposit till its payment. The interest will be payable on the above basis only if the depositor has died before the maturity of the deposit. If the depositor has died after the maturity of deposit, no interest will be payable beyond the date of maturity.

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NRI Deposits

1.		Rate of Interest: FCNR: Subject to cap of LIBOR/Swap Rates for the respective currency/corresponding maturities minus 75 basis points. NRE Account: Fixed Deposit: Subject to cap of LIBOR/Swap rates, as on the last working day of the previous month, for US Dollar of corresponding maturities with effect from 25 April, 2007. NRE - Savings Bank account: Interest rate shall be at the rate applicable to domestic savings account.
		Interest rates will be subject to RBI directives issued from time to time.

2.		Can banks accept recurring deposits under FCNR(B) Scheme?
		No. Banks cannot accept recurring deposits under FCNR (B) Scheme.

3.		Are banks permitted to offer differential rate of interest on NRE / FCNR(B) deposits?
		No.

4.		What is meant by Reinvestment Deposit?
		Reinvestment deposits are those deposits where interest (as and when due) is reinvested at the same contracted rate till maturity which is withdrawable with the principal amount on maturity date. It is also applicable to domestic deposits.

5.		Can NRE / FCNR(B) deposits can be renewed from retrospective effect (i.e. from the maturity date)? If yes, what is the rate of interest payable?
		FCNR: As per RBI guidelines, banks are permitted to renew at their discretion an overdue FCNR deposit or a portion, thereof, if the overdue period from the date of maturity till the date of renewal (both days inclusive) does not exceed 14 days. The rate of interest payable on the renewed FCNR deposit will be the rate of interest prevailing on the date of maturity or the date of renewal whichever is lower for the relevant maturity period. Where the overdue period exceeds 14 days, the interest for the overdue period will be less by 0.50% on the interest applicable for the period of 'one yea r and above but less than two years' prevailing on the date of maturity or the date of renewal whichever is lower. NRE: In respect of overdue deposits renewed within 14 days from the maturity date, the rate prevailing on the date of maturity or on the date of renewal whichever is lower will be applicable. In case, the NRE overdue deposits exceed 14 days and where the depositor places the entire amount or a portion thereof as fresh NRE deposit, the interest rate applicable to NRE-SB prevailing on the 'date if maturity' or 'date of renewal' whichever is low will apply.

6.		Are interest rate stipulations applicable to loans in rupees under FCNR(B) scheme applicable to loans denominated in foreign currency?
		No. Interest rate stipulations applicable to loans in rupees under FCNR (B) Scheme are not applicable to loans denominated in foreign currency which are governed by the instructions issued by Reserve Bank.

7.		Under what circumstances additional interest over and above the declared rate of interest can be paid in case of FCNR(B) deposits?
		No. It is not permitted to pay additional interest over and above the declared rate of interest.

8.		In the case of deceased depositor's NRE / FCNR(B) deposit, in the event of legal heirs effecting premature withdrawal before completion of minimum prescribed period, is any interest payable?
		No. A deposit has to run for a minimum stipulated period, which is at present one year for FCNR (B) and NREA Fixed deposits.

9.		Can banks pay interest on NRE and FCNR(B) deposits for the intervening Saturday, Sunday and holidays between the date of maturity and payment?
		Yes. In respect of a term deposit maturing for payment on a Saturday/Sunday or a holiday or a non-business working Day, banks can pay interest at the originally contracted rate on the deposit amount for the Saturday/Sunday/non-business working day intervening between the date of expiry of the specified term of the deposit and the date of payment of the proceeds of the deposit on the succeeding working day.

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Advances/Loans

1.		What is the meaning of the word 'Free' in the lending rate prescription?
		Banks are free to fix Prime Lending Rate (PLR) for credit limits over Rs.2 lakhs with the approval of their respective Boards, which should be the minimum rate charged by them for such credit limits. PLR is to be declared and has to be uniformly applicable at all branches. The banks may authorise their Asset-Liability Management Committee (ALCO) to fix interest rates on Deposits and Advances, subject to their reporting to the Board immediately thereafter. The banks should also fix maximum spread over the PLR with the approval of the ALCO/Board for all advances other than consumer credit.

2.		(i) What are the 'intermediary agencies'? (ii) What are 'housing finance intermediary agencies'?
		An illustrative list of Intermediary Agencies is as under: State sponsored organizations for on-lending to Weaker Sections.@ Distributors of agricultural inputs/implements. State Financial Corporations (SFCs)/State Industrial Development Corporations (SIDCs) to the extent they provide credit to weaker sections. National Small Industries Corporation (NSIC). Khadi and Village Industires Commission (KVIC). Agencies involved in assisting the decentralized sector. Housing and Urban Development Corporation Ltd. (HUDCO). Housing Finance Companies approved by National Housing Bank (NHB) for refinance. State sponsored organization for SCs/STs (for purchase and supply of inputs to and/or marketing of output of the beneficiaries of these organizations). Micro Finance Institutions/Non-Government Organisations (NGOs) on-lending to SHGs. @ 'Weaker Sections' in Priority Sector includes following: Small and marginal farmers with landholdings of 5 acres and less, landless labourers, tenant farmers and share-croppers; Artisans, village and cottage industries where individual credit requirements do not exceed Rs.25,000/-. Small and marginal farmers, sharecroppers, agricultural and non-agricultural labourers, rural artisans and families living below the poverty lines are the beneficiaries. The family income should not exceed Rs. 11,000/- per annum. Scheduled Castes and Scheduled Tribes. Beneficiaries are persons whose family income from all sources does not exceed Rs.7200/- per annum in urban or semi urban areas or Rs.6,400/- per annum in rural areas. They should not own any land or the size of their holding does not exceed one acre in the case of irrigated land and 2.5 acres in the case of unirrigated land ( land holding criteria do not apply to SC/ST). Beneficiaries under Scheme of Liberation and Rehabilitation of Scavengers (SLRS). Advances granted to Self-Helf Groups (SHGs) for reaching the rural poor. Explanation: The word "family" shall mean and include the spouse of the member/retired member of the bank's staff, his/her children, parents, brothers and sisters who are dependent on such a

3.		Whether banks can charge interest rate without reference to their own PLR?
		espect of deposit accepted in the name of - the bank may, in its discretion, allow additional interest at a rate not exceeding one per cent per annum over and above the rate of interest stipulated. Provided that - Loans covered by refinance schemes of term lending institutions. Interest rates on bank lending to intermediary agencies. Bill discounting by banks. Advances/overdrafts against domestic/NRE/FCNR(B) deposits. Banks are also free to determine the rates of interest without reference to PLR for the following categories: Loans for purchase of consumer durables. Loans to individuals against shares and debentures /bonds. Other non-priority sector personal loans. However, it is not the intention to allow any concessionality in case of such loans and therefore banks should not charge rates below PLR, regardless of the size of the loan amount.

4.		Can banks have multiple PLRs?
		Yes. The banks may announce different PLRs for credit limits over Rs. 2 lakhs for different maturities provided the transparency and uniformity of treatment originally envisaged continues to be maintained. The banks, which have moved over to declaration of tenor-linked PLRs should always indicate the specific tenor for which the declared PLR is applicable. Banks may announce a separate Prime Term Lending Rate (PTLR) for term loans of three years and above. Banks may also prescribe separate PLRs and spreads over PLRs for loan component and cash credit component.

5.		Can banks grant fixed rate loans for the purposes other than project finance?
		The banks have freedom to offer all loans on fixed or floating rates subject to conformity to Asset Liability Management (ALM) Guidelines. However, they should ensure that the PLR stipulations as applicable are complied with. The nature of alignment with PLR i.e. whether it is at the time of sanction or disbursement of the loan, should be made explicit at the time of sanction of the loan. However, for small loans upto Rs. 2 lakhs, the stipulation of 'not exceeding PLR' (for relevant maturity) would be applicable.

6.		Whether the revised PLR/s will be applicable to the existing advances?
		Yes. The banks are required to invariably incorporate following proviso in the loan agreements in the case of all advances, including term loans, enabling banks to charge the applicable interest rate in conformity with the directives issued by RBI, except in case of Fixed Rate Loans. "Provided that the interest payable by the borrower shall be subject to the changes in interest rates made by the Reserve Bank from time to time."

7.		Can banks provide a rebate in interest rate whereby the interest charged works out lower than the PLR?
		No. Charging a rate of interest below prevailing PLR where a bank has not contracted a fixed rate loan, to any borrower at any time would be deemed as violation of our directives. It would not be in order to provide rebate resulting into actual interest rates charged to any borrower working out lower than the PLR. However, there is no objection to allowing a rebate, as long as the effective interest rate is not below the PLR. The spirit behind the advice to banks to declare PLR with the approval of their ALCO/Board is to make it applicable uniformly at all branches and to impart transparency in the matter of lending rates.

8.		Are banks permitted to charge interest below their declared PLR under consortium arrangement to offer rate comparable to leader bank?
		No. The banks need not charge a uniform rate of interest even under a consortium arrangement. Each member bank should charge rate of interest on the portion of the credit limits extended by them to the borrowers subject to their PLR.

9.		What should be penal rate of interest?
		In the event of default, the banks may charge penal interest in the borrowal accounts. The overall penal/additional interest to be charged by banks should not exceed 2% over and above the rate of interest applicable/normally charged to the respective borrowers. The penal interest is independent of the regular rate of interest. Penal interest should not be levied on ad-hoc limits since the limits are generally granted pending regular sanction of loan and the rate of interest thereon should be subject to the maximum spread over PLR.

10.		What will be the interest rates for direct housing finance to individuals?
		Direct housing loans to individuals upto Rs.5 lakhs in rural/semi-urban area and Rs.10 lakhs in urban/metropolitan area and loans upto Rs.50,000/- for repairs to damaged houses by individuals are treated as priority sector advances. The rate of interest will be determined according to size of the credit limit. As such the loans upto Rs.2 lakhs should be charged interest as per size of limit i.e. 'not exceeding PLR'. Loans above Rs. 2 lakhs and upto Rs. 5 lakhs in rural/semi-urban area or Rs.10 lakhs in urban/metropolitan area should be charged interest subject to PLR and the spread announced by the bank concerned. Loan above Rs.5 lakhs in rural/semi-urban area and above Rs.10 lakhs in urban/metropolitan area will fall under category 'Other non-priority sector personal loans' in which case banks are free to determine the rates of interest without reference to PLR.

11.		Consequent on the deregulation of interest rate on advances over Rs. 2 lakhs with effect from October 18, 1994, how banks will bear DICGC Guarantee fee in respect of priority sector advance?
		As regards DICGC Guarantee fee, the banks have discretion to absorb or to pass on the guarantee fee to the borrower in case of advances over Rs.25,000/- excluding advances to weaker sections. Banks should bear DICGC guarantee fees in respect of advances upto Rs. 25,000/- and all advances to weaker sections.

12.		Can banks charge rate of interest beyond the spread announced by them on advances granted to Non-Banking Finance Companies (NBFCs)?
		Banks have freedom to charge interest rate beyond the declared 'spread' on advances granted to NBFCs for onlending for consumer credit.

13.		Can interest on loans and advances be charged at varying periods ranging from monthly rests to yearly rests?
		The interest rates on loans and advances should be charged with quarterly or longer rests. As such, application of interest at monthly rests would not be in order.

14.		What rate of interest is chargeable on loans/ advances granted to Staff Member/Staff Co-operative Credit Societies?
		The interest rate directives on bank advances will not be applicable to loans or advances or other financial accommodation made or provided or renewed by a scheduled bank, inter alia, to its own employees. Where the advances are provided by the bank to co-operative credit societies formed by the bank's staff members for lending to constituents ( i.e. Staff of the bank ) the interest rate directives of the RBI will not apply to such advances.

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Advances/Loans against shares and debentures

1.		Can banks sanction loans to Trust and Endowments against the security of shares and debentures?
		No.

2.		Can banks sanction loans against the equity shares of the company to its directors?
		No.

3.		Will investments in units of following types of mutual fund schemes be outside the purview of 5% incremental deposits of the previous year?
		Gilt Funds investing in Central/State Government securities Mutual Funds investing in Corporate Debts Mutual Funds investing in PSU Bonds Yes, since these investments are in respect of debt funds they are outside the purview of 5% incremental deposits of the previous year.

4.		Can banks invest in their subsidiaries?
		Banks can invest in their subsidiaries. However, such investments will be outside the purview of 5% incremental deposits of the previous year subject to compliance of Section 19 of the Banking Regulation Act, 1949.

5.		Which bills should not be discounted by the banks?
		The bills covering payment of electricity charges, customs duty, hire purchase/lease rental instalments, sale of securities and other types of financial accommodation should not be discounted by banks.

6.		Can the unutilised portion of 5% ceiling prescribed for investments in shares of previous financial year be carried over to new financial year?
		No.

7.		Can banks invest in Fixed Deposits of non-banking non-financial companies?
		There is no prohibition on banks' placing of funds with non-banking non-financial companies under their Public Deposit Scheme. However, such investment in the Public Deposit Scheme should be classified by banks as loans/advances in their balance sheet and returns under the Banking Regulation Act, 1949 and fortnightly returns by scheduled commercial banks under Reserve Bank of India Act , 1934.

8.		Can banks purchase letter of allotment in respect of PSU Bonds?
		Bank can purchase letter of allotment in respect of PSU bonds subject to following conditions. The transaction (other than inter bank transaction) should be undertaken only through recognised Stock Exchanges and registered brokers. While purchasing the security, the bank should ensure that it gets a clear title to the security and the security is traded in the secondary market. The bank should formulate their own internal guidelines with the approval of the Board for undertaking such transaction.

9.		What should be the method of valuation for advances against shares/debentures /bonds?
		Shares/debentures/bonds should be valued at prevailing market prices when they are lodged as security for advances.

10.		Can banks invest in dedicated venture capital funds meant for information technology and whether the 5% ceiling will apply?
		Yes, banks can invest in dedicated venture capital funds meant for information technology. The overall ceiling of 5% will stand automatically enhanced to the extent of bank's investment in dedicated venture capital fund meant for information technology.

11.		Can banks sanction bridge loans to companies?
		Yes. For a period not exceeding one year against the expected equity flows/issues as also against the expected proceeds of Non-convertible Debentures, External Commercial Borrowings, Global Depository Receipts and/or funds in the nature of Foreign Direct Investments, provided the bank is satisfied that the borrowing company has made firm arrangements for raising the aforesaid resources/funds. Such loans are required to be accommodated within the ceiling of 5% of incremental deposits of the previous year.

12.		What is the quantum of loans to individuals against security of shares, debentures and PSU bonds if held in physical form and in dematerialized form?
		The loans to individuals against the security of shares, debentures and PSU bonds if held in physical form should not exceed the limit of Rs.10 lakhs per borrower and Rs.20 lakhs if the securities are held in dematerialized form.

13.		What is the margin stipulated for shares held in physical form and dematerialized form?
		The minimum margin stipulated is 50% of the market value of equity shares/convertible debentures if held in physical form and minimum 25% if shares and debentures are held in dematerialized form.

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