RBI asks banks to credit interest payment every quarter

Reserve Bank of India (RBI) in a circular issued on March 3, 2016 has asked all the commercial banks in the country to pay interest on savings banks account on quarterly basis i.e. a shorter duration from the existing half-yearly basis, a move which will benefit all the savings account holders.

In a recent development which is expected to benefit millions of saving account holders across the country as now they will be receiving interest on a quarterly basis i.e. 90 days as against  the past practice of 6 months.

At present, public sector banks offer 4 per cent interest on savings deposit whereas private banks offer as much as 6 per cent.

In 2011, the Central Bank had decided to de-regulate fixing of savings bank deposit rates. While giving banks this freedom, RBI had said a uniform rate will have to be offered on deposits for a slab of Rs 1 lakh. However, on higher amounts, commercial banks are allowed to offer differential rates to depositors.

Higher the frequency of interest payment on saving, the better it is for the depositors as the compounding benefit is augmented, thereby benefiting all the account holders. Whereas, in such a scenario banks have to shell out more as far as interest outgo is concerned. According to a rough estimate, interest burden on banks will lead to Rs 500 crore outgo from the banks' income statement.

The benefit to large savings account holders will be more as compared to the ones with small savings as the compounding effect will work well in the case of a larger amount.