Banks to calculate interest rates on a daily basis

Salary and savings account holders could witness their interest income rise by 25 per cent under the new daily average method proposed by the Reserve Bank of India for computation of interest on savings accounts, according to rating agency Crisil.

New RBI rule

According to the new RBI rule from April 1, banks will compute the annual 3.5 per cent interest rate on savings accounts on a daily basis instead of taking the lowest deposit during a month.

Crisil said the new method of interest computation will increase the effective interest rate on savings balances, particularly for salary account holders. “It is estimated that for a salary account holder with a minimum savings balance between 1-2 times of the monthly salary, the increase in interest income will be between 10 and 25 per cent,'' it said.

Impact on banks

Earlier, banks gave 3.5 per cent interest on savings accounts on the basis of the least deposit in an account between the 10th and the last day of each month. The interest is credited in the account twice a year, in March and September.

Crisil study

As for the impact on banks, Crisil said the cost of deposit for them will increase by 10-20 basis points depending on the share and pattern of the current and savings accounts (CASA). “This will not materially impact their profitability or lead to any significant change in the share of low-cost deposits, that is CASA, in the banking system,'' it added. Crisil, however, said the impact is expected to be higher for banks that have a dominant share of salary accounts with highly fluctuating balances.

While announcing the annual monetary policy for 2009-10 unveiled in April last year, the Reserve Bank of India had said, “payment of interest on savings accounts by scheduled commercial banks would be calculated on a daily product basis with effect from April 1, 2010.''

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