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Tuesday, October 16, 2012

Banks should credit interest every month, says depositors’ body

When banks receive interest on loans at monthly intervals, then shouldn’t depositors also get the same deal?

A depositors’ body has flagged the issue of depositors getting a raw deal with the Reserve Bank of India (RBI).

Banks have been charging interest on loans and advances at monthly intervals (as against quarterly intervals earlier) with effect from April 1, 2002. Due to the reduction in the interest application frequency, the yield on bank loans have increased, the All-India Bank Depositors Association said.

However, banks pay interest on savings bank (SB) and term deposits at ‘quarterly or longer intervals’, resulting in depositors getting relatively less yield on their deposits.

The association pointed out that throughout the RBI’s regulated as well as deregulated regime on SB and term deposit interest rate, there was no standard on the interest application frequency. This resulted in the annual percentage yield on the deposits being different for different banks.

“We are pursuing with the central bank to get banks to credit interest on deposits uniformly at monthly rests. This will help depositors realistically compare deposits rates.

“Currently, depositors are not able to make an objective comparison of deposit rates as interest is credited at quarterly or longer intervals,” said Ashok Ravat, Honorary Secretary, All-India Bank Depositors’ Association.

He emphasised that the central bank should balance the interests of banks and the depositors. The depositors’ body said the question of the RBI’s inability, till date, on standardising the interest application frequency was a cause for concern. In the interest of depositors, it wants to have only one simple standard (based on crediting of interest at monthly intervals) to compare returns on deposits.

Usha Thorat, Director, Centre for Advanced Financial Research and Learning, in a speech last year, said that the current asymmetry between the periodicity of interest paid to depositors on their savings account and the interest charged on their loan account needs to be reviewed by regulators to address the existing anomaly.

As per RBI data, banks in India had deposits aggregating to about Rs 65-lakh crore as on September 28, 2012.


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