The Chief Executive Officers of all

Primary (Urban) Co-operative Banks (UCBs)

Dear Sir

Please refer to our Master Circular UBD.No. BPD.MC. No. 9/13.01.00 / 2003-04 dated March 16, 2004 on the above subject.

2. With a view to harmonizing present regulations pertaining to different interest rates for various categories of customers and products and also to review the regulations on operational aspects of deposits, Reserve Bank of India (RBI) had constituted a Working Group on 'Interest Rates on Deposits and Procedures' under the Chairmanship of Shri H. N. Sinor, Chief Executive Officer, Indian Banks’ Association. After considering the recommendations of the Working Group, it has been decided to make the following changes in our extant guidelines:

In terms of our existing instructions (paragraph 10 of our Master Circular dated March 16, 2004), banks are free to renew overdue domestic term deposits at an interest rate prevailing on the date of maturity provided the depositor approaches the bank within 14 days from the date of maturity of the deposit. In case the application for renewal is made 14 days after the date of maturity, the rate of interest offered should be the rate prevailing on the date of renewal of deposit. Banks also have freedom on the interest rate payable for the period between the date of maturity and date of renewal. On a review, it has been decided that all aspects concerning renewal of overdue deposits may be decided by individual banks subject to their Board laying down a transparent policy in this regard and the customers being notified of the terms and conditions of renewal including interest rates, at the time of acceptance of deposit. The policy should be non-discretionary and non-discriminatory.

The Master Circular dated March 16, 2004-

1. prescribe that banks should maintain a reasonable margin on any financial accommodation allowed against the security of a term deposit and that they may determine the margin on a case-to-case basis (para 13), and
2. details the criterion for payment of interest on a matured deposit in the event of death of the depositor(para 11).

On a review, it has been decided that decisions in regard to the above may be left to the discretion of individual banks subject to their Board laying down a transparent policy in this regard.

3. An amending directive UBD. No. PCB. Dir. 2 /13.01.00/2003-04 dated April 8, 2004 on items (i) and (ii), is enclosed.

Indian Banks’ Association (IBA) Code for Banking Practice is issued by IBA for uniform adoption by the Member Banks. The Code is intended to promote good banking practices by setting out minimum standards which Member Banks will follow in their dealings with customers. IBA, for the purpose of calculation of interest on domestic term deposit, have prescribed that on deposits repayable in less than three months or where the terminal quarter is incomplete, interest should be paid proportionately for the actual number of days reckoning the year at 365 days. It has been reported to us that some of the banks are adopting the model of reckoning the year at 366 days / 365 days in Leap year and in other years respectively. While banks are free to adopt their methodology, they should provide information to their depositors about the manner of calculation of interest appropriately while accepting the deposits and display the same at their branches.

5. Please acknowledge receipt to the concerned Regional Office.

Encl: As above.

In exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949 and in partial modification of its Directive UBD No. DC. 102/ V.T.-86-87 dated June 25, 1987 read with, UBD No. DS.PCB.DIR. 7 /13.01.00/94-95 dated October 26, 1994, UBD No. PCB.DIR.10/13.01.00/2000-01 dated April 19, 2001, and UBD No. PCB.DIR.8 /13.01.00/2000-01 dated May 18, 2001, the Reserve Bank of India, being satisfied that it is necessary and expedient in the public interest so to do, hereby directs that, paragraphs 13, 15 and 16 of the said directive shall be substituted by the following:

'The matter is left to the discretion of individual banks subject to their Board of Directors laying down a transparent policy in this regard and the customers being notified at the time of acceptance of deposit. The policy should be non-discretionary and non-discriminatory'.

'The matter is left to the discretion of individual banks subject to their Board of Directors laying down a transparent policy in this regard.'

2. All other provisions of the directive shall remain unchanged.